Should the GOP Cut Taxes Even if it Raises the Deficit?

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.

E.J. Smith - Your Survival Guy

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E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.