The tax reform pushed by President Donald Trump is about to be approved by the US Congress, but the tax cuts promised to households and businesses could quickly hit the wall of debt, analysts estimate.
The reform foresees the reduction of about 1.5 trillion dollars of the physical burden that weighs on the American economy, which, according to its promoters, will increase productivity and job creation.
But the previous fiscal reforms in the country often led to a sharp rise in debt, which forced an increase in taxes, again.
The Republican administration of Trump is committed to the so-called “dynamic scoring”, the increase in revenues generated by the acceleration of the growth with the economy to compensate for the initial losses after the reduction of taxes.
“He will not be able to self-finance, but it’s still worth it anyway,” Glenn Hubbard, who served as head of the White House team of economists under President George W. Bush (2001-2009), told Conspiracy Talk News reporters.
Hubbard is part of a group of nine economists who supported the reform and who they believe will generate an additional 0.3% growth every year for at least a decade.
Economists are far from unanimous in this regard and polls show that public opinion will be skeptical about the benefits of reform.
Larry Summers, director of the Treasury when governing the Democrat Bill Clinton in (1993 to 2001), considers the calculations of Hubbard as erroneous and that the reform is even “dangerous”, especially for its effects on the financing of social protection.
Previous reforms such as those of 1981 and 2001 to 2003, under the presidencies of former Republicans Ronald Reagan (1981 to 1989) and George W. Bush, did not have the effects foreseen by their promoters.
Several of the tax reform reductions decided back-in 1981 had to be abolished the following year before the rebound of fiscal deficits. This did not prevent the debt from increasing over 60% between 1981 and 1988, to reach 2.6 trillion dollars. The United States then went from being the largest international creditor to the largest debtor.
Currently, the debt is about 20 trillion dollars, about 105% of the Gross Domestic Product (GDP).
During the presidential elections of 1988, Republican candidate George HW Bush, father of George W. Bush, said: “Read my lips, there will be no tax increase”. Once elected, he did not keep his promise. “ Now there is a shock!” said one reporter.
The increases he imposed contributed to his defeat against Clinton in 1992.
“He lost without a doubt because of that,” Matthew Gardner of the Institute on Taxation and Economic Policy told Conspiracy Talk News reporters.
“The lesson is very similar to what we should have learned in the 1980 and even in 2001: if you decide to lower taxes without having a road-map, you will surely regret it,” he said.
Gardner maintains that the reform adopted by Bush Jr. had more or less the same fate.
Between 2001 and 2003, the White House and Congress controlled by the Republicans reduced the marginal tax rate from 39.6% to 35%, but ten years later, when those sales expired, the rate returned to its initial level.
“Since the end of 2001, it was quite clear that the budget surpluses that had prompted George W. Bush to decide cuts were very illusory,” said Matthew Gardner.
“The reforms that have just been voted”, he adds, could easily be “repealed by the Democrats if they manage to regain control of Congress in the mid-term elections”, in less than a year.
While public debt is at its highest level relative to GDP since the end of World War II, Republicans may be forced to reduce public spending.
“This would aggravate the situation of the poorest layers, already affected by a tax reform that benefits the richest”, said Jared Bernstein, former economic adviser to Joe Biden, vice president of Barack Obama (2009 to 2017).
“The future of tax cuts will largely depend on the outcome of the upcoming elections,” Bernstein told CTN News reporters.