In Edward Chancellor’s Devil Take the Hindmost (Chapter 8), the Author briefly highlights the era in our history known as the “Reagan Revolution”. Events that Chancellor defines as significant are the weak enforcement of Glass-Steagall, reduced funding for the SEC, and the strike of air traffic controllers. More broadly, Reagan centered his policies around tax cuts, deregulation, and “free-trade” initiatives. Chancellor concludes his overview of the time period by noting that although Reagan claimed his policies enabled any individual to get rich, in reality, owners of land and capital generated massive amounts of wealth while those at the bottom were squeezed. The foundation of Reagan’s philosophy and one that Chancellor mentions is the idea
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The Brookings Institute published research showing that although tax cuts have shown to increase earnings, there are many negatives that follow this growth. One negative is that such cuts can “subsidize old capital”, which results in “windfall gains”. From my interpretation, this means that producers are earning a certain return on their investment which is beginning to deteriorate. Normally, they would be required to re-invest in order to continue earning their required return on capital. However, with the tax cut, they are now achieving their sought after return on capital, no longer being required to invest in new growth opportunities. Secondly, tax cuts historically raise the national deficit unless funded through other cuts. This can affect future investment as the costs of capital may increase. Recently, a major tax reform bill passed through the United States Senate. This bill proposed large tax cuts for corporations while many senators pushed the idea of “trick-down” economics and how the economy would benefit greatly from such cuts. However, the non-partisan Congressional Budget Office completed an analysis of the bill finding that it would add ~1.4 trillion to the national deficit. Conservatives dismissed this finding, calling it “curious” and asking that it be further assessed. Opponents of tax cuts justified by trickle-down economics see that historically, it is hard to make a case that such cuts have spurred growth. In addition, recently many legislators have publicly admitted to pushing for tax cuts for their wealth donors which leads many to believe that there is an ulterior motive for such
The Brookings Institute published research showing that although tax cuts have shown to increase earnings, there are many negatives that follow this growth. One negative is that such cuts can “subsidize old capital”, which results in “windfall gains”. From my interpretation, this means that producers are earning a certain return on their investment which is beginning to deteriorate. Normally, they would be required to re-invest in order to continue earning their required return on capital. However, with the tax cut, they are now achieving their sought after return on capital, no longer being required to invest in new growth opportunities. Secondly, tax cuts historically raise the national deficit unless funded through other cuts. This can affect future investment as the costs of capital may increase. Recently, a major tax reform bill passed through the United States Senate. This bill proposed large tax cuts for corporations while many senators pushed the idea of “trick-down” economics and how the economy would benefit greatly from such cuts. However, the non-partisan Congressional Budget Office completed an analysis of the bill finding that it would add ~1.4 trillion to the national deficit. Conservatives dismissed this finding, calling it “curious” and asking that it be further assessed. Opponents of tax cuts justified by trickle-down economics see that historically, it is hard to make a case that such cuts have spurred growth. In addition, recently many legislators have publicly admitted to pushing for tax cuts for their wealth donors which leads many to believe that there is an ulterior motive for such