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Two must read opeds on the Trump tax plan

Summary:
There are a few must-read opeds out there today on the administration’s tax plan. I found this first one to be extremely resonant as it’s just a bucketful of common sense from an entrepreneur who lives in the real world, as opposed to the world of the DC tax cut debate, where, as former Treasury Secretary Larry Summers strongly argues, falsehoods flourish. Marcus Ryu, co-founder of a successful software company (Guidewire Software), writes: As an entrepreneur myself and a friend to many others, I know that lower tax rates will not motivate more people to start companies. People start companies for many reasons: a compelling idea, ambition for fame and fortune, a desire to be one’s own boss, frustration with one’s employer. I have never heard someone say, “I would have started a company,

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There are a few must-read opeds out there today on the administration’s tax plan.

I found this first one to be extremely resonant as it’s just a bucketful of common sense from an entrepreneur who lives in the real world, as opposed to the world of the DC tax cut debate, where, as former Treasury Secretary Larry Summers strongly argues, falsehoods flourish.

Marcus Ryu, co-founder of a successful software company (Guidewire Software), writes:

As an entrepreneur myself and a friend to many others, I know that lower tax rates will not motivate more people to start companies. People start companies for many reasons: a compelling idea, ambition for fame and fortune, a desire to be one’s own boss, frustration with one’s employer. I have never heard someone say, “I would have started a company, but tax rates were too high” or “I wouldn’t have started this company, but then George W. Bush cut tax rates, so I did.”

He goes on to point out that the tax code is already plenty friendly to those who would start companies, with privileged rates on capital gains and (as Summers stresses) the ability to largely write off the costs of capital investments.

Moreover, as I and other have repeatedly argued, investment capital is uniquely cheap right now, such that Ryu argues that (my bold):

…lowering the corporate tax rate isn’t going to make us create jobs any faster. What [it] would do is increase our post-tax profitability, which effectively transfers money from the federal government to our shareholders. One consequence of this would likely be a one-time increase in our stock price, but with no impact on our operations or employment plans. In theory, this could have the benefit of making it easier to raise cash by issuing more stock to the public, but with interest rates at historical lows for years, American corporations have had no trouble getting capital.

Both Ryu and Summers then stress that wasting trillions in lost revenue will make it even harder than it is already to make the necessary public investments that are going wanting as we speak, in physical (infrastructure) and human capital. Summers notes that it’s a big mistake to jack up “the budget deficit at a time when we should be preparing for the next downturn, for rising entitlement costs and potentially for the need for increased national security spending.” Larry’s also long advocated for infrastructure investment, and I’d add the damages increasingly linked to climate change to the list of why this is precisely the wrong time to be significantly cutting revenues.

Ryu gets the last word, as he perfectly sums up the absurdity of this proposed plan:

I am an entrepreneur and a businessman, but I am also a citizen. I believe tax cuts that deepen our already severe inequality in income and wealth are not in the long-term interests of any citizens, not even the very wealthy. Extreme inequality is corroding our civil society, poisoning our politics, and undermining our effectiveness as a nation. This is an extremely hard problem to solve, but when you’re in a deep ditch, the first thing to do is stop digging.

Jared Bernstein
Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, Executive Director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team. Prior to joining the Obama administration, Bernstein was a senior economist and the director of the Living Standards Program at the Economic Policy Institute, and between 1995 and 1996, he held the post of Deputy Chief Economist at the U.S. Department of Labor.

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