Can We Afford to Cut Taxes?
President Trump wants to champion the greatest tax cut in history. In theory, if you cut taxes you create economic growth which increases revenue back to the government. You make it more corporation-friendly which encourages corporations to come back to America because the tax rates are favorable. Is it that easy?
Of course, he is urging Congress to get this done quickly. There is an inconvenient truth concerning his ideas. They already tried something similar in Kansas and it failed miserably. At first, the plan looked like it would work. Then the deficit soared and the plan quickly fell apart. Could it be that this makes Trump look like a genius just in time to get him re-elected and then fall apart during his second term? Don't forget, he is all about creating the optics.
Plus, you have to take some tax benefits back to even remotely make this work. As of late, there was the rumor that his tax plan would greatly reduce or eliminate the 401 K plan tax deduction by changing the 401 K plan to the Roth 401 K plan. You would lose the tax deduction up-front. However, you would get tax free income when you take the money out. Of course, that just creates another revenue problem down the road about the time that social security is bankrupt. He did tweet out this morning that there will be no changes to the 401 K plan. How about mortgage deductions for home mortgage interest? I heard that was on the table as well.
The thing that concerns me about President Trump is that he has a history of swinging for the fence. His ideas are either boom or bust. Most of the time those ideas are funded with other people's money. This time it would be funded with our money. We are either going to enjoy the low probability boom or pay for the high probability bust. President Obama has a legacy of a horrible healthcare system. Will economic ruin be President Trump's? Maybe we were actually safer when politicians didn't do anything but play golf and work to get re-elected.
The math is very simple. The last number that I heard was 1/2. We are borrowing 1/2 of every dollar we spend. We are over 20 trillion in debt and climbing and the government depends on taxes to be paid year in and year out to fund government spending. These cuts to the revenue that would have been coming into the government had better create enormous amounts of growth or the opposite will happen - they will raise taxes down the road.