Why Trump’s proposed tax cuts are bad on several levels

There was a time when highlighting the increasing disparity in income and wealth in this country would get one labeled as a proponent of class warfare. However, most now acknowledge that the fruits of the economic tree are tending to fall in fewer baskets.

Donald Trump has proposed cutting the top individual income tax rate from 39.5 percent to 33 percent. He further proposes to lower the top corporate income tax rate from 35 percent to 15 percent. Worst of all, he proposes to abolish the estate tax.

While an argument can be made that the top corporate income tax rate should be lowered for international competitiveness reasons, the estate tax, which has been with us since 1916, has an exemption of $5.4 million per individual or $10.86 million per couple and is indexed for inflation. This is a tax that only the wealthiest estates pay. Even then, this tax is paid by those heirs who in most cases (excluding family farms and businesses) did not earn the wealth to begin with.

From WWII to the late 1970s, Gross Domestic Product rose in tandem with wages. However, from the late 1970s to the present, productivity has increased yet wages have essentially stagnated. According to the Economic Policy Institute, productivity grew by 74 percent between 1973 and 2013. Wage compensation grew by only 9 percent during the same time period. Many economists attribute this trend to increasing technology and productivity and increases in world competition.

Given that large wealth disparities can lead to social unrest, the role of government should be to attempt to counteract this trend to the extent feasible without damaging the overall productivity of the economy.

The only justification for the Trump tax cuts is the argument that tax cuts lead to more economic growth. Society certainly does benefit from economic growth. However, the problem is that most studies show that tax cuts do not lead to higher rates of economic growth.

A study conducted by the nonpartisan Congressional Research Service concluded that, “The reduction of the top tax rates appears to be uncorrelated with saving, investment and productivity growth. The top rates appear to have little or no relation to the size of the economic pie. In fact, top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.”

Another problem with Trump’s proposed tax cuts is that they would cost the U.S. Treasury a lot of money. Estimates vary from a low of $9.5 trillion to a high of $12 trillion, calculated over a 10-year period.

This reduction in income to the Treasury would occur at a time when we need to spend additional money on infrastructure and education in order to better compete in the world market. It is the case that neither party seems too concerned about the deficit. However, with baby boomers reaching retirement age and the subsequent pressure placed on Social Security and Medicare, this is no time to be eroding our tax base.

The Trump tax cuts would be fiscally imprudent and would further exacerbate our economic divisions when we need to focus our public resources on investments that will make us more economically competitive in the long run. These cuts would be a self-inflicted wound that we should avoid.

This story was originally published September 16, 2016 at 4:07 PM with the headline "Why Trump’s proposed tax cuts are bad on several levels."