MacIver News Service | November 29, 2017

By M.D. Kittle

MADISON, Wis. – Critics of a Republican tax reform package winding its way through congress are employing fuzzy math – again – in an attempt to tear down the first rewrite of the tax code in more than 30 years.

It’s the same kind of “static” math that Wisconsin Dems use in ripping into an unprecedented economic development deal expected to transform the Badger State economy.

The Wall Street Journal points out such wringing of hands “comes with ill grace from people who cheered Barack Obama’s doubling of the national debt in eight years.”

The Wall Street Journal Editorial Board recently took on some faulty numbers propping up a failed narrative in the Journal’s classic beatdown of “Democrats and their media chorus.”

The tax-and-spend left is suddenly worried about what a $1.5 trillion tax cut would do to the bloated national debt. As the publication points out, such wringing of hands “comes with ill grace from people who cheered Barack Obama’s doubling of the national debt in eight years.”

It’s also overwrought, the editorial adroitly points out.

The left-wing debt brigade bases its reasoning on Congressional Budget Office estimates, which has often – much too often – underestimated the revenue growth unleashed by the simple act of allowing taxpayers to keep more of their hard-earned money.

“A classic example is the 2003 cut in the tax rate on capital gains,” the Wall Street Journal editorial board points out. 

CBO predicted $215 billion in capital-gains revenue through 2007, $162 billion below the actual $377 billion that came in.

“CBO underestimated economic growth and how much investors would cash in their gains,” the editorial states.

The budget office’s projections on the pending tax reform package are based on a very conservative 1.9 percent annual economic growth figure over the course of the 10-year tax cut. Such a slow growth rate would defy history. The U.S. Gross Domestic Product growth rate has averaged 3.19 percent from 1948 until 2017. If the U.S. economy grows at the average rate, CBO’s projected $1 trillion revenue “hole” created by the tax reform proposals would be filled.

“An average growth rate of even 2.4% over the decade would more than fill the hole,” the Journal noted.

The tax-cuts-will-explode-the-debt narrative not only defies the past, it’s a bet against America’s future economic growth. That’s a bad bet.

Pending tax reform legislation would expand the U.S. economy by 3.7 percent, boost the workforce by 925,000 jobs, and raise wages 4.4 percent for families over the long run, according to the Tax Foundation. In Wisconsin, middle-income families would see a $2,632 increase in annual income, and the freed capital would generate an additional 18,707 jobs, according to the Tax Foundation’s analysis using a “macroeconomic model.”

The latest CBO figures rely on static scoring. The agency earlier this week said it is “not practicable” at this point to do dynamic calculations taking into account macroeconomic effects.

Flat Foxconn Math 

Such static measurements by Wisconsin’s nonpartisan Legislative Fiscal Bureau created a firestorm of false talking points for the left in the wake of the biggest economic development deal in Badger State history.

In August, the headlines screamed, “Wisconsin won’t break even on Foxconn plant incentives for 25 years,” based on the fiscal bureau’s static analysis.

The fiscal bureau acknowledges that “any cash-flow analysis that covers a period of 30 years must be highly speculative,” but that didn’t stop liberals from all kinds of doom-and-gloom speculation.

Taiwanese tech giant Foxconn Technology Group plans to build a massive $10 billion-plus liquid crystal display screen manufacturing complex in Racine County. Foxconn says it will create 13,000 jobs, paying nearly $54,000 on average. The deal calls for up to $3 billion in state economic incentives, including $150 million in sales tax exemptions.

The fiscal bureau acknowledges that “any cash-flow analysis that covers a period of 30 years must be highly speculative,” but that didn’t stop liberals from all kinds of doom-and-gloom speculation.

“They fail to account for the income that would grow over the next three decades, and as we know from history, we have wage growth in this state,” said Scott Manley, senior vice president of Government Relations for Wisconsin Manufacturers and Commerce. “Not to mention the fact that when you bring 13,000 jobs to an area, that’s going to have an upward impact on wages for everyone.”

The fiscal bureau’s analysis also failed to take into account the broader impact of an economically transformational project, one that is expected to generate some 10,000 construction jobs, thousands more jobs supporting Foxconn and the region, and billions of dollars in secondary investment.

“What it didn’t account for was the largest foreign investment that has ever taken place in this country. It didn’t account for an entirely new ecosystem that is going to attract investment on a scale that no one can truly appreciate,” Manley said.

What History Says

The same assessment limitations and flaws permeate the tax cut debate.

History is replete with real examples of tax reductions spurring economic growth. In the 1920s, tax rates dropped from a high mark of 70 percent to less than 25 percent. As the Heritage Foundation pointed out in a historical look at U.S. tax cuts, personal income revenue increased substantially in the 1920s – from $719 million in 1921 to $1.16 billion in 1928.

In the early 1960s, President Kennedy moved to reduce the breathtakingly high top rate of more than 90 percent to 70 percent.

After President Kennedy’s tax cuts, revenue increased 62 percent. After President Reagan’s tax cuts, income tax revenue went up more than 54 percent.

“What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent,” the report noted.

The Reagan tax cut of 1983 drove up income tax revenue by north of 54 percent by 1989.

Despite history’s verdict, based on actual numbers, tax reform critics continue to roll out the same flawed budget busting narratives. They do so even as vaunted budget analysts warn that long-term projections are “highly speculative.”

“Political interests who fundamentally believe in bigger government and more more government believe the best way to get there is to have a well-funded government that taxes to the max, and they will do whatever they can to derail meaningful tax reform,” Manley said. “If that means cooking the numbers to make it difficult to get tax cuts done in the first place, that’s what they do.”

This article appears courtesy of the MacIver Institute.
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