Senate GOP had pretty much settled on a bill that will provide $1.5 trillion in tax cuts over the next ten years. Then, on Thursday, the Joint Committee on Taxation, a nonpartisan group that reports to Congress, delivered some good news and some bad news.
The good news is that the tax cuts would raise our annual rate of economic growth by 0.8 percent. The bad news is that the tax cuts would still increase the deficit by $1 trillion over the next ten years. Despite claims that the Joint Committee must have gotten it wrong, its conclusion left a handful of Republican Senators very uncomfortable.
Going back to the 1950s, the Republicans rightfully regarded themselves as the party of fiscal responsibility. Indeed, they repeatedly called for an amendment to the Constitution that would require Congress to pass a balanced budget every year – except, of course, during wars or other crises.
But more recently, that old-time balance-the-budget religion has been less and less observed. Even President Ronald Reagan famously proclaimed that deficits don’t matter.
Today, there remains a handful of budget hawks in the Senate, for whom a ten-year deficit of one trillion dollars is unacceptably high. And since it takes just three nays from the Republican caucus to defeat the bill, President Donald Trump, Senate GOP Majority Leader Mitch McConnell, and other strong advocates of the tax bill will need to convince the hawks that the ten-year deficit will be substantially less than a trillion dollars.
So let me see if I can help them out. Now I realize that it breaks the hearts of nearly every Congressional Republican to raise taxes, but what if it’s done in a relatively painless way? Why not impose a tax of one-tenth of one percent on all financial transactions?
For example, if the proceeds of the sale of 100 shares of a stock were $1,000, the tax would come to just one dollar. But wait – it gets even better! Perhaps a third of these taxes would be paid by foreigners.
How much revenue would this tax raise? Maybe as much as $50 billion a year. Why that would wipe out half of the projected deficit!
But that tax – as well as virtually any other tax – goes against another sacred belief held by virtually all Congressional Republicans. Taxes must not be raised! Not even a relatively painless tax like the one I’ve proposed.
Maybe the Senate GOP will be able to work things out among themselves, and the deficit hawks will go along. But if not, they might want to consider a tiny tax increase that would result in a massive deficit reduction.
About the Author
Steve Slavin has a PhD in economics from NYU, and taught for over thirty years at Brooklyn College, New York Institute of Technology, and New Jersey’s Union County College. He has written sixteen math and economics books including a widely used introductory economics textbook now in its eleventh edition (McGraw-Hill) and The Great American Economy (Prometheus Books) which was published in August.