The tax cuts issued as part of the first Trump government largely expire at the end of 2025. President Trump and his Republicans endeavor to extend them.
How could political decision -makers pay for the extension of the 2017 tax cuts? Different Sources Suggest that the new administration is considering comprehensive cuts for expenditure programs, including Medicaid and the Supplemental Nutrition Assistance Program, which is also known as SNAP or grocery labels. This one or two punch would leave almost all households with low incomes as well as many households with medium and high income tubes.
Worse, the distribution of the extended cuts would be fairly regressive. Only 1.7% of the advantages would go according to the lower 20% of households, compared to almost 65% to the top quintile and more than 23% up to the top 1%. The average tax savings for the lower quintile would only be $ 130 per year compared to USD 70,000 per year for the top 1%. And the super-rich, upper 0.1% would enjoy an average annual tax saving of more than $ 275,000.
Estimates from the Tax Policy Center of Urban Brooking Microsimulation model illustrate these effects. If an extension of tax cuts were financed by the uniform reduction in federal aid in the households, more than three quarters of families would be worse. In the lower two income quintas, more than 99% of households would be worse, which would be exposed to an average annual tax increase of USD 1,515. Even in the middle fifth, 76% of households would be worse.
And if the expenses cut off the safety network programs such as those, as the administration reports – in contrast to more general spending cuts – poor households are injured even more. Even if the expenses were proportional to household income, 63% of households would be worse.
Proponents of tax cuts often argue that they promote economic growth and help everyone in the entire spectrum of income. A newer Analysis of the Budget Office of the Congress found that the extension of the income tax regulations that would only create a small, short -term increase in gross domestic product would generate. After only four years, the cuts would easily lead by increasing the federal budget deficit lower GDP growth than if you can fail.
Meanwhile several youngest Analyzes From decades of politics in the wealthy nations of the Organization for Economic Cooperation and Development showed that the taxes of the rich have no sensible effects on economic growth. But it exacerbates income inequality.
We have now Sufficient evidence That the investment in health, education, nutrition and other resources of children pay long -term dividends for both the directly affected people and the economy as a whole. This indicates that the congress should allow the tax cuts to expire and instead invest in programs that serve children and families with lower and medium -sized incomes. The renewal of tax cuts for 2017 and the financing of spending cuts is the right policy only if the “problem” is that the poor are not poor enough and the rich are not rich enough.
William Gale is co-director of the Tax Policy Center of Urban-Brooking and was a senior economist for President George HW Bush.