Wednesday, October 17, 2012

Romney's Tax Reform's Will Not Spur Economic Growth

This article, written by a member of Ronald Reagan's administration, explains why Romney's tax plan, which he represents as the critical component of component of his plan to stimulate economic growth, will not work.  In the first place it is not really a plan because it is based upon eliminating deductions which broaden the tax base and enable him to cut tax rates. He does not specify the deductions that he will eliminate, so is impossible to evaluate the real consequences of the plan.  That is, who are the winners and losers from his plan.  Moreover, it is very difficult to end popular deductions.  It would be an economic disaster if tax rates were cut and not paid for by the elimination of deductions.

The second problem with Romney's plan is that changes in tax policy have had little effect on economic growth.  Ronald Reagan cut the top tax rate by 22% and it only had modest effects on economic growth.  Bush also cut the tax rate and reduced taxes on capital gains and dividends.  He also ended the estate tax.  The economy was not stimulated by his tax policies.  Instead the tax burden was shifted from owners of capital to wage earners.

No comments:

Post a Comment