About that Trump Tax Plan | FREE WHITEWATER

About that Trump Tax Plan

In Whitewater, by press release (twice), one can read about the supposed benefits of the Trump tax plan. The Whitewater Community Development Authority’s executive director, Dave Carlson, was quick to push a portion of the plan as good for Whitewater.

In doing so, he conceded what anyone observing Whitewater with care and concern already knew: that Whitewater is a lower-income community. (This is true in demographics other than the student-population, too.)

Indeed, if Whitewater were not a lower-income community generally, then an application for lower-income status would have been – at best – erroneous. Carlson cannot – reasonably – both claim the supposed benefits of the Trump plan for Whitewater and simultaneously disclaim its need. Since Carlson expressly touts the work of Trump, Walker, Mnuchin, and Sensenbrenner (and even writes that the CDA chair personally met and thanked Sensenbrenner for the legislation), he has no defense that lower-income status is all a big misunderstanding.

(Showing relative changes among different populations within the city, over the last generation, is a worthy project. That’s an approach that seems even more revealing than a general, all-population assessment.)

What, however, of the Trump tax bill, overall? Have Trump, Mnuchin, and Sensenbrenner brought America something good?

Careful assessments suggest they haven’t.  Benjamin R. Page and William G. Gale contend that CBO estimates imply that TCJA will boost incomes for foreign investors but not for Americans:

The CBO analysis implies that TCJA effectively will have no impact U.S. incomes after 10 years. The difference, in econ-speak, is between the estimated effect on Gross Domestic Product (GDP, or the output created within in the U.S.), the effect on Gross National Product (GNP, output created by American workers and American-owned capital), and ultimately on Net National Product (NNP, which is GNP minus depreciation of capital goods, and comes closest of the three measures to American incomes). Hang on while we explain the difference.

CBO estimates that TCJA will increase U.S. GDP by 0.5 percent in 2028. CBO projects that the tax cuts will boost output in 2028 largely because lower tax rates on capital income—such as the 21 percent rate on corporate profits—increases the after-tax rate of return which in turn will boost the stock of productive capital such as computers or factories.

But here’s the kicker:  CBO figures that most of that additional capital will be financed by foreigners—for example, from overseas corporations building factories in the U.S., or foreign investors buying U.S. stocks and bonds. As a result, net payments of profits, dividends, and interest to foreigners also will rise. Unlike GDP, the GNP subtracts those net payments to foreigners from domestic production. GNP therefore provides a better measure of the impact on U.S. incomes. CBO projects that tax bill will boost GNP by just 0.1 percent in 2028.

It turns out that the rise in depreciation is about 0.1 percent of output in 2028—enough to erase the already meager boost to GNP. Thus, long-run incomes for Americans as measured by NNP will be more or less unchanged by the TCJA. You can email one of us at bpage@urban.org if you’d like to see the details.

And that’s the good news about the TCJA. It ignores the negative effects of the tax law: Worsening income inequality, less revenue to finance government services and benefits, and higher federal debt. If the tax cut’s direct benefits on U.S. incomes are non-existent, it is hard to make a case that it is a positive for the U.S. economy in the long term.

Carlson and the Whitewater CDA think Trump, Walker, Mnuchin, and Sensenbrenner have they answer for Whitewater, do they?

No, and no again.

PreviouslyOn the Whitewater CDA’s Press Release (A Picture Reply Is Worth a Thousand Words and A Candid Admission from the Whitewater CDA.

Notify of
Inline Feedbacks
View all comments