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Neither the Budget Nor Tax Reform Will Do Much for Sustainability.

Don’t expect the budget before Congress to make the economy more sustainable.
Budget negotiations are hung up in Congress, where Republicans can’t agree on what they want. Still, the budget the president released on May 23 set the tone and direction.

The president’s budget was anti-business, if you define business as companies with U.S. employees and sales that want to remain viable. His budget would reduce consumer spending, boost tax breaks for U.S. multinationals, and slash important business regulations.

The budget’s proposed cuts to Medicaid would result in less healthcare and more strain on business. Insurance costs would rise, reducing consumer spending and slowing the economy.
Its cuts to environmental protections would damage the air and water resources that businesses depend on to operate successfully. Moreover, U.S. innovations to protect the environment will fall behind innovations in countries that invest in low-carbon technologies.

The proposed tax cuts for our top earners will do little to boost the economy, because wealthy taxpayers spend less of their income on consumption. To strengthen the economy, taxes should be cut for ordinary Americans, who spend most of their income on consumption.

As long as the budget follows the president’s proposal, the economy will be made less sustainable, not more. Healthcare costs will increase, climate-change damage will accelerate, and the wealth gap between the rich and the rest of us will worsen.

The sustainable benefits of proposed tax-law changes look modest at best.

The president and House Republicans are divided on what they want to do about taxes. The president wants large tax cut taxes to spur economic growth. House Speaker Ryan wants to overhaul the corporate tax code, by making basic and permanent changes.

Both the president and Ryan propose tax cuts for U.S. multinationals, arguing that U.S. taxes are too high for them to compete overseas. Both would cut taxes that favor the rich. Among other things, the president would repeal the estate tax, which impacts just 0.2 percent of Americans who die, according to Congress’s Joint Committee on Taxation.

Tax cuts for the wealthy do relatively little to boost the economy, because wealthy people spend a small percentage of their income on the consumption that drives the economy. By contrast, cutting taxes for ordinary Americans (who spend a lot on consumption) will boost the economy.
As for reforming business taxes, Ryan’s proposal would replace our corporate income tax with a system that taxes corporate income where a product is sold rather than where its made or where the maker is headquartered.

Ryan’s plan has run into intense resistance because it includes a border adjustment tax. This would exempt U.S. exports from income tax, and end the deductibility of import costs.
Naturally, big exporters support the plan, while retailers and others that rely on imports oppose it. They point out that a border-adjustment tax will eat into their profits; force consumers to pay more for imports; and create a tax windfall for big exporters.

The opponents are right on both counts. U.S. consumers would pay more, and exporters would get a windfall. Neither of these will make the economy more sustainable.

John O’Neill is ASBC’s Senior Policy Analyst.