Reduction in tax make it easier for
companies to move profits overseas by adopting a territorial system where
profits earned abroad are taxed at a lower rate, and sometimes not taxed at
all. They also offer a much lower rate for companies that decide to bring back
profits currently parked overseas; this corporate tax “holiday” encourages
future tax evasion by setting a precedent that evasion will be rewarded with
special breaks to bring the money back.
However, In the short run,
government don’t earn too much from tax, and just add $1 trillion or more to
the federal debt. In the long run, they raise taxes on individuals and limit
health care aid through ending Obamacare’s individual mandate. After 10 years,
the bill is basically a tax hike on individuals, particularly poorer
individuals getting Medicaid or insurance subsidies, to pay for corporate cuts.
optimistic side, the right-leaning Tax Foundation finds that the bill would
increase USA GDP by 2.7 percent over the long run, and increase middle-class
incomes by 5 percent through supercharged growth; even they, however, find that
the bill increase the deficit by more than $500 billion over 10 years
despite those effects. In all, over the first decade, the larger
economy created by the House bill will yield $169 billion in additional tax
revenue. That’s not
enough to cover the $1.4 trillion revenue loss from the core of the plan.
Findings from Piketty, Saez and
Stantcheva (2014) states that, across advanced countries, even large changes in
the top marginal income tax rate over time do not appear to be strongly
correlated with rates of growth.
The financing of tax cuts significantly affects its
impact on long-term growth. Tax cuts financed by immediate cuts in unproductive
government spending could raise output, but tax cuts financed by reductions in
government investment could reduce output. If they are not financed by spending
cuts, tax cuts will lead to an increase in federal borrowing, which in turn,
will reduce long-term growth. The historical evidence and simulation analyses
suggest that tax cuts that are financed by debt for an extended period of time
will have little positive impact on long-term growth and could reduce growth.
Second, revenue-neutral income tax reform can provide a modest boost to