She then responded to Republicans’ complaints about the risk of inflation: Spending will be “spread out quite evenly over eight to 10 years,” she said. “So, the boost to demand is moderate. And the Federal Reserve has the tools to redress inflation should it arise. We will monitor that very carefully.” She added, “We are proposing that the spending be paid for. And I don’t believe that inflation will be an issue, but if it becomes an issue, we have tools to address it.”
Moreover, a recent Treasury report found:
As a result of the tax cuts of prior years, the United States now raises only about 16 percent of GDP in federal tax revenue, a decline of about four percentage points in the last two decades.The corporate tax has historically raised around 2 percent of GDP in revenue. This share depends on a host of factors, including the state of the business cycle and the division of profits between the corporate and non-corporate sectors. Still, corporate tax revenues remained roughly constant over the past four decades. After the corporate tax cuts under the TCJA [Tax Cuts and Jobs Act], the share of corporate taxes collected as a share of GDP fell from 2 percent to 1 percent.
Under the 2017 tax cuts, 55 giant companies paid no federal taxes last year, the share of tax revenue coming from corporations dropped precipitously, the trajectory of growth and jobs did not change and the national debt increased. Corporations have made out like bandits. “In recent years, corporate profits (aftertax) as a share of GDP averaged 9.7 percent (2005-2019), whereas in the period 1980-2000, corporate profits averaged only 5.4 percent of GDP,” the report found. “The U.S. corporate sector is the most successful in the world: it hosts 37 percent of the Forbes 2000 companies by profit while the United States accounts for 24 percent of world GDP.”
Sen. Rob Portman (R-Ohio), also appearing on “Meet the Press,” declared that Yellen, who also has served as the Federal Reserve chair, is “just wrong.” Why? He says Biden’s plan will kill jobs. Wait. The tax cuts did not create the jobs and growth that he and other Republicans promised. And corporate tax rates would still be lower than before the tax cuts were implemented in 2017. Portman insists capital will go elsewhere, ignoring the provisions in the plan that seek to establish a minimum tax and reduce favorable tax treatment for foreign-derived income. (Moreover, the notion that businesses will flee, for example, to Europe — currently in a recession — to find lower tax rates ignores the myriad other factors including the cost of labor, access to markets, cost of living for employees and regulation that determine where investment goes.)
Republicans simply ignore the mountain of evidence disproving the benefits of supply-side tax cuts. The Post reported in December on five decades of tax research: The tax cuts “had no effect on economic growth or employment. Though those quantities fluctuated slightly after the major tax cuts that were studied, the effect was statistically indistinguishable from zero.” Despite political rhetoric, “The ‘rocket fuel’ so often promised by supporters of these tax cuts? It fizzles out time and time again.” They sure do not pay for themselves.
In this debate, I would side with the former Fed chair — one of the most respected economists in the country who has tons of data to back her up — over the party that falsely promised tax cuts would pay for themselves and permanently increase growth and jobs.