Republican blogger John Tsitrian joins me in ridiculing Rep. Kristi Noem’s claim that her tax cut fantasies can produce 9.1% economic growth. Adding to the pile of experts saying such growth in an “advanced mature economy like ours” (Tsitrian’s words) “is way beyond reach,” Tsitrian cites his UC Berkeley-trained daughter Emily, who questions not only the target of 9.1% GDP growth but the imaginary pop gun Kristi Noem thinks can hit that target:
Emily notes that she “has yet to see a compelling example of where lowering taxes created that kind of growth.” Adds Emily, “the problem is that those kinds of models make incorrect assumptions about how people spend their tax savings. Businesses tend to favor stable, solvent governments with good infrastructure and educated labor pools, both of which require higher taxes to achieve” [John Tsitrian, “Kristi Noem Is Either out of Her League or out of Her Mind,” The Constant Commoner, 2016.10.27].
I have found the source of our Congresswoman’s remarkably exact 9.1% GDP growth target. In July, the Tax Foundation published an analysis of the House Republican tax reform plan that claims, “the plan would significantly reduce marginal tax rates and the cost of capital, which would lead to 9.1 percent higher GDP over the long term, 7.7 percent higher wages, and an additional 1.7 million full-time equivalent jobs.”
“Long-term” may be the key phrase in the Tax Foundation’s analysis that’s missing from Rep. Noem’s discussion. The Tax Foundation’s analysis projects economic and fiscal impacts over ten years. Making the economy 9.1% bigger ten years from now requires only a 0.87% boost each year.
Tax cuts can goose the economy, but short-term cuts are better than permanent cuts, and cutting taxes for low-income workers boosts consumer activity and GDP much more effectively than Noem’s plan to give the Trumps more tax breaks. As Emily Tsitrian says, we do more to foster long-term economic growth by maintaining a stable tax structure and investing in education and infrastructure than we do by transferring the common wealth back to the greedy hands at the top.