Tax Cuts and the Economy

Like other elections before, the 2016 presidential campaign will feature the pros and cons of tax cuts. An article in the Washington Post this week discusses Republican hopeful Marco Rubio’s newly unveiled tax plan, which offers significant cuts to corporations and wealthy individuals, while also increasing tax credits that go to middle class families with children. The Post piece focuses on the political calculus behind the plan – e.g. it quotes Democratic Senator Charles Schumer saying that “What they’re trying to do is sound like they’re helping the middle class, but really please their wealthy patrons” – but also highlights one of the basic assertions made by Rubio and other Republicans: “Rubio said [the tax cuts] would expand the economy and help families throughout the country.”

The economic benefits, or not, of tax cuts to the wealthy are a recurring theme in American politics. See for example a 2012 opinion piece in the New York Times (“Do Tax Cuts Lead to Economic Growth?” by Pulitzer prize winner David Leonhardt), which takes the position that “… the whole history of the last 20 years offers one of the most serious challenges to modern conservatism” – i.e. because tax cuts have not been associated with better economic performance. Advocates for tax cuts usually argue that average people will drive the economy by spending more if they are taxed less, and that the wealthy will invest in enterprises that create new jobs and commerce. Critics point out that the affluent are likely to turn tax savings into saved wealth that doesn’t help the economy, and that tax cuts increase budget deficits, thereby reducing the money available for things known to help the economy such as job training, educational improvements and infrastructure investment. We will be hearing all these arguments again in coming months.

GOP challenge: Cut taxes for wealthy, show concern for middle class | Washington Post

Do Tax Cuts Lead to Economic Growth? | The New York Times