This week, Republicans are preparing to unveil the details of a tax reform proposal that would deliver tax relief to individuals and businesses, as well as simplify the tax filing process. How to “pay for” the tax cuts will be the big debate in the weeks and months ahead. Some of the tax breaks that are reportedly on the table include state and local tax deductions, home mortgage deductions, and individual retirement accounts.
But whatever happened to spending cuts?
There’s only one real way to pay for tax cuts, and that’s with spending cuts. And we can start by some of the programs that don’t contribute to economic growth. “There are some government expenditures that don’t add value to the economy and should have never been undertaken,” writes Wayne Winegarden, Ph.D. and author of PRI’s Beyond the New Normal: Establishing a pro-growth economic policy environment. He cites the $6.3 million in agriculture subsidies paid to 50 billionaires between 1995 and 2014 as an excellent lesson.
But in a more sobering example, Winegarden writes that despite the War on Poverty and the tremendous growth in income support expenditures, there’s been very little decline in America’s poverty rate. In Beyond the New Normal, Winegarden makes the case for evaluating whether the additional dollars spent on a multitude of government programs are truly adding value to the economy. If not, the programs should be eliminated.
While tax cuts and tax reform will allow people to save and spend more of what they earn, “improving how current expenditures are allocated, reducing the costs associated with the federal, state, and local tax system, and right-sizing the overall level of government expenditures,” writes Winegarden, is the most effective way to promote economic growth. Until Washington has the courage to do this, the $20 trillion debt – and growing – will continue to hurt future economic growth.