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Saving America from Trump’s Tax Reform

In principle, US President Donald Trump and his fellow Republicans were not wrong to pursue corporate-tax reform, with the goal of boosting US competitiveness. But, at the behest of the party's donors, the legislation they enacted will increase inequality, impede growth in the most productive states, and blow up the federal budget.

BERKELEY – US President Donald Trump and congressional Republicans had an opportunity – and a responsibility – to reform the US tax code to address three major economic challenges: slowing growth, rising inequality, and a looming fiscal crisis. Sadly, they shirked their responsibility by passing a bill that squandered this opportunity.

At a time when US public debt as a share of GDP is already at a post-war high, the legislation will add another $1.5-2.2 trillion to the deficit over the next decade. At a time when income and wealth inequality is soaring, an estimated 80% of the tax cuts will go to the top 1% by 2027. And at a time when the economy has been growing steadily for 33 quarters and is approaching full employment, the legislation will have only a modest effect on growth.

To be sure, a significant cut in the corporate tax rate was long overdue. The legislation will likely stimulate investment and encourage domestic and foreign companies to do business in the United States. But, by an overwhelming majority, economists predict that the increase in the growth rate will fall far short of the annual gain of one percentage point (or more) hyped by Trump and his economic advisers.

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