EPI: Republican Tax Plan Will Reduce American Competitiveness

Labor News

Reprinted from The Economic Policy Institute by Robert Scott on November 30, 2017.

“Supporters of the Republican tax plan claim that business tax cuts, including cutting corporate tax rates and immediate expensing of non-structure investments will increase US business investment and economic growth,” writes Robert Scott for The Economic Policy Institute. “However, this one-sided analysis ignores the impacts of financing the tax cut package by adding $1.5 trillion to federal budget deficits over the next decade. Past experience has shown deficit-financed tax cuts are associated with higher interest rates, an overvalued US dollar and growing trade deficits.

“A recent report from the Council of Economic Advisors claims that tax cuts and the immediate expensing of equipment (non-structural) investments will reduce the user cost of capital (UCC), ‘increasing firms’ investment, desired capital stock, and potential output.’ In addition, they claim that lowering the UCC will lead ‘multinational corporations and foreign capital…to invest in the US economy.’ These arguments could have some merit if the plan were revenue neutral, and financed by closing loopholes and through other tax reforms. However, domestic and foreign businesses are unlikely to invest in the United States if there is inadequate demand for domestically produced goods. US manufacturing and other traded goods industries (including agricultural products and other traded commodities) will be hard hit by the Republican tax plan, because it is financed through a large increase in the government budget deficit. Further, real-world evidence indicates that the UCC facing American corporations is already incredibly low yet business investment remains quite sluggish. In short, the UCC is not a current constraint on American investment, so efforts to reduce it further will miss the point in aiming to boost this investment. …

EPI 11/30

About Jeffrey Burman 1999 Articles

Jeff Burman represents assistant editors on the Guild’s Board of Directors. He can be reached at jeffrey.s.burman.57@gmail.com.

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