By the end of 2025, the first tax relief formulated by the Trump administration. President Trump and his Republican president are eager to expand it, but doing so without spending simultaneously will increase the deficit by $5 trillion in 2035.
How do policymakers pay for extending tax cuts in 2017? All kinds of source It is recommended that the new government is considering broad cuts to spending plans, including Medicaid and Supplementary Nutrition Assistance Program, also known as SNAP or food stamps. This two-time fist will make it worse for almost all low-income families, as well as many middle- and high-income families.
Worse, the distribution of the extended cut will be return. Only 1.7% of benefits can be reduced to the lowest household by income, while the highest 1% is 65% for income, while the highest 1% is over 23%. The average tax savings for the lowest quintile are only $130 per year, while the tax savings for the highest 1% are $70,000. Super rich, with a maximum of 0.1% annual average tax savings of more than $275,000.
Urban-Brookings Tax Policy Center Estimates Microsimulation model Explain these effects. If the extension of the tax cut is funded by equal reduction of federal aid among all households, more than three-quarters of households would be worse. Of the two income quintiles at the bottom, more than 99% of households will be worse, facing an average annual tax of $1,515. Even in the medium term, 76% of households will get worse.
And if spending cuts target safety net plans (as reported, rather than more general spending cuts), poor families will suffer more. Even if spending cuts are proportional to household income, 63% of households will be worse.
Supporters of tax cuts often believe that they promote economic growth and help everyone in the entire income field. However, recently Analysis by Congressional Budget Office It was found that the expanded income tax provisions that expired would only create small short-term bumps in GDP. In just four years, by increasing the federal budget deficit, the cuts will lead to a slight reduce GDP growth is more than allowed to grow expiry.
At the same time, there are several Recent analyze Decades of policy in wealthy countries in the OECD have found that cutting taxes for the rich has no meaningful impact on economic growth. But this does greatly exacerbate income inequality.
We have Sufficient evidence Investing in children’s health, education, nutrition and other resources all pay long-term dividends to the people who directly affect and the economy as a whole. This suggests Congress should allow tax cuts to expire, but instead invest in programs that serve low-income children and families. The right policy is to renew the 2017 tax cuts and fund them by cutting spending if the “problem” is that the poor are not poor enough and the rich are not rich enough.
William Gale is co-director of Urban-Brookings Tax Policy Center and is a senior economist for the President of the George HW Bush Economic Advisory Board.
