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VOL. 42 | NO. 2 | Friday, January 12, 2018
Why the GOP tax cuts are boosting stocks and who gains most
WASHINGTON (AP) — President Donald Trump and Republican lawmakers late last year rushed $1.5 trillion in tax cuts into law — the most sweeping rewrite of the tax code since 1986.
Republicans assert that the plan will deliver stronger economic growth and substantial pay raises for the middle class. Democrats and most economists counter that the measure will overwhelmingly favor corporations and wealthy individuals and swell the budget deficit.
Lily Batchelder, formerly an economic adviser in the Obama White House and chief tax counsel for the Senate Finance Committee, is a law professor at New York University specializing in tax policy. In an interview, she explained to The Associated Press why she believes stocks are surging in response to the tax cuts and just how the middle class, whose spending drives the economy, will fare.
Q: Who are the biggest winners from these tax cuts?
A: The wealthy. That's partially because their income taxes get cut and partially because they tend to be the people who own companies, so they benefit from lower corporate rates.
Q: Is it reasonable to expect that these tax cuts will help the stock market?
A: It's probably already helped them. The stock market appears to have anticipated these changes, and shares have risen. The increases are one way the wealthy will be better off. Another way is, going forward, corporations should be more profitable, and that should benefit the wealthy in the form of more dividends and capital gains.
Q: How would everyday Americans do?
A: On average, they would get a very small tax cut in the near term and a tax increase in the long term. In the short term, the family earning $40,000 to $50,000 gets a tax cut. But as a share of their income, it's about one-third the size of the average millionaire's tax cut. But after 2025, all of the tax cuts for individuals have expired, and their taxes will increase.
Q: Some lawmakers have said the individual tax cuts will be renewed instead of expiring.
A: If they're renewed, the middle class will continue to get a small tax cut. But the tax cut would shrink over time because a less generous measure of inflation would now be used for adjusting the tax brackets. Also, the deficit would be much higher than the $1.8 trillion in new borrowing and interest costs that are currently projected.
Q: Do you see these tax cuts as a recipe for lasting economic growth?
A: I think the way the economy grows is by investing in families, investing in the middle class and the next generation. This law does very little of that. Lower corporate taxes should have a modest impact on growth in the short term but over the long term are likely to have no impact or a negative impact because of the higher deficits.
Answers are edited for length and clarity.