With the constant barrage of criticism over the country’s big spending from Republicans, you would think it would be easy in a GOP controlled government to make cuts. You’d be wrong of course. The GOP has shown that despite a party-wide aversion to big spending, when it comes down to anyone giving up the appropriations afforded to their special interest group the calls for cuts quiet down.
So without the ability to cut spending, it would seem dangerous to cut taxes, thereby widening America’s already large deficit gap. Despite this fear, Chris Edwards, director of tax policy studies at the Cato Institute, explains how this may negative outcome could be mitigated. He writes:
Alas, Republicans cannot seem to cut spending, and they have not yet agreed on which tax breaks to repeal. Without such deficit offsets, they should scale back their tax package to just the most pro-growth elements, particularly a corporate tax rate cut. A corporate cut would initially reduce federal revenues, but over time companies would build more U.S. factories, bring foreign profits back home, and evade taxes less. The tax base would expand and reduce any resulting deficits over time.
Such dynamic growth effects are evident in reforms abroad. Canada cut its federal corporate tax rate from 29% to 15%, and Britain cut its rate from 30% to 19%. In both countries, corporate tax revenues as a share of the economy are more or less unchanged despite the sharp rate cuts.
If the GOP focuses on pro-growth tax changes, we shouldn’t worry about the short-term hit to the deficit. America’s businesses and their workers need a more competitive tax code, and Republicans should seize the opportunity to get it done.
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