The Tax Reform Legislation of 2017

Classic economists or any student in an introductory economics course would be able to

reiterate the fact that decreasing taxes increases spending, ultimately boosting the economy. This

may prove true on a basic graph, but history has revealed different effects when large tax cuts

were enacted. Today, we stand in a historic time in which the Republican party is on the brink of

passing a large-scale tax reform bill. Trump argues that his tax reform bill will “lift all economic

boats, bringing a brighter future for taxpayers and their families”. 1 Essentially, budget deficit

equals federal outlays minus tax receipts. The proposed tax cuts are intended to stabilize the

budget deficit without increasing government spending. Over time, the tax reform is calculated

to cut 1.5 trillion in taxes.2 The Republicans claim decreased taxes will bolster economic growth,

but I believe such cuts will only enable decreased government revenue. Additionally, I believe

the supply-side based tax cuts will hurt middle class and poorer Americans just as the Reagan

and Bush tax cuts did.

The tax reform legislation of 2017 closely resembles the Reagan tax reforms of 1981.

Today’s proposed tax cuts do not promote efficiency because the cuts do not reduce marginal tax

rates, ultimately putting the interests of corporations over those of working class families. The

“Republicans Are Rushing Towards a Deal on Their Tax Plan.” Time, Time, 13 Dec. 2017, time.com/

5061933/republican-tax-bill-corporate-rate/.

2Patel, Jugal K., and Alicia Parlapiano. “The Senate’s Official Scorekeeper Says the Republican Tax Plan

Would Add $1 Trillion to the Deficit.” The New York Times, The New York Times, 28 Nov. 2017,

www.nytimes.com/interactive/2017/11/28/us/politics/tax-bill-deficits.html.

!2

Reagan tax cuts, like those today, were advertised on the conclusion that they would pay for

themselves. The expectations of the 1981 tax cuts are rejected by an overwhelming majority of

professional economists. The 1981 tax cuts were promptly followed by a ballooning of the

federal deficit, from 2.8 percent of national income in 1980 to a peak of 6.3 percent by 1983.3

The budget deficit from 1983 to 1986 remained twice the share of gross domestic product than it

had been before President Reagan took office.4 Trump’s proposed tax cuts mirror the 1981 tax

cuts that featured fiscal irresponsibility, benefits going to corporations and the wealthy, and was

the outcome of a rushed, partisan process.

In 2001 and 2003, President George W. Bush repeated Reagan’s 1981 tax cuts all over

again with legislation that managed to disregard the standard of fiscal responsibility, impartiality

and bipartisanship expected to occur in tax reform. Once again, politicians who identified as

fiscal conservatives claimed without evidence that the tax cuts were by some means consistent

with budget regulation. The subsequent result was a significant drop in the budget balance. Just

like in the 80’s, the national debt rose rapidly in the early 2000’s. The increased deficit

constrained the ability of the federal government to respond with fiscal stimulus when the

recession occurred in 2007, helping the 2007 recession become the biggest financial crisis since

the Great Depression in the 1930’s. The 2017 Republican tax cuts are poised to position the

country in a worse-off situation than the tax cuts of the George W. Bush era.

The Bush tax cuts were one of the largest cuts in history, and the cuts did not result in

proportional growth of the economy. The Bush tax cuts refer to both the 2001 “Economic

3contributor, Jeffrey Frankel opinion. “To understand the tax reform bill, use good old math and history.”

TheHill, The Hill, 10 Dec. 2017, thehill.com/opinion/finance/364145-to-understand-the-tax-reform-billuse-

good-old-math-and-history.

4Jeffrey Frankel opinion. “To understand the tax reform bill, use good old math and history.”

!3

Growth and Tax Relief Reconciliation Act” and 2003’s “Jobs and Growth Tax Relief

Reconciliation Act”. Similar to the proposed 2017 tax reform, Bush’s tax cuts favored the

wealthy, with 75 percent of the cuts directed to the top 20 percent of income earners.5 The Bush

tax cuts were a large assessment of supply side economics. They were well-timed to correspond

with the 2001 recession following the “dot-com” crash. The Bush administration and its

supporters advocated that the cuts would generate positive economic growth that would be

beneficial to all income brackets. Although the tax cuts added trillions to the national deficit,

they did little to encourage significant growth. The economic recovery period following the “dotcom”

crash, from 2001 to 2007, was the weakest recovery from a recession in post-World War II

history, with the U.S. averaging 2.7 percent annual economic growth.6 Compare this to previous

recoveries from recessions, and you can see the sluggish growth