Cogito Ergo Non Serviam
Trump Tax Bill Signed
The Trump administration finally has a legislative win to report. The tax bill, which Mr. Trump has falsely dubbed "one big, beuatiful bill," passed the House, and the president signed it on Friday. The shift of wealth from the poor to the rich that it embodies is the largest such theft in a great many years. Even that would be tolerable if the financial damage the bill is going to do could be avoided. It cannot. The arithmetic says that this is going to balloon the national debt to levels where servicing it becomes difficult. America will face lower growth, fewer jobs, higher prices and a decline in global power as a result of this folly.
First off, this passed by the narrowest of margins. The bill left the House (where all revenue bills must begin according to the Constitution) on a 215-214-1 vote. In the Senate, it passed 51-50 on the strength of the tie-breaking vote the Constitution gives to Vice President J.D. Vance as President of the Senate. On the return to the House, which passed the Senate version of the bill, the vote was 218-214. It is not popular legislation, being opposed 2-1 in most opinion polls.
Second, the bill makes permanent the tax cuts from the first Trump administration that made the national debt grow even before Covid hit the world. Cutting taxes during an economic expansion was foolish and inflationary, and only the pandemic lockdown prevented the inflation from starting sooner. The pandemic simply delayed it and made it worse.
Making these cuts permanent, (they were to sunset this year) creates a structural deficit that cannot be fixed with spending cuts alone. That is because the largest single item on the federal budget is debt servicing. If all government spending ceased today, the credit card bill for past consumption is still there.
Third, the attempt to cut spending to justify the tax reductions is going to cost America in ways few realize. The obvious area is in healthcare where about $1 trillion is being cut from Medicaid over the next decade, and as many as 11 million people will lose their health insurance coverage. Some of them have medical conditions that can be fatal without proper care. The chances of them getting the needed care is less likely now.
The shift in who benefits from federal largess is also going to reduce GDP growth. The Council of Economic Advisors, the White House economic cheerleaders, have claimed that the bill will boost GDP growth between 2.4% to 2.7% in the long run. This is less a vision of the future than it is a hallucination. The American Enterprise Institute (as right as right can be) says the analysis ignores a few important things. The AEI says the estimate ignores the impact on tax increases on workers (the State and Local Tax deduction is cited – SALT), ignores the impact on new investment and ignores the inelasticity of the labor market.
The CEA suggests that for every 1% increase in after tax wages, workers increase their labor supply by 0.75%. The AEI says, "A review by the Congressional Budget Office (CBO) puts the elasticity closer to 0.24. According to the CEA's methodology, simply using a more appropriate labor supply elasticity would reduce the impact of OBBBA on long-run GDP by roughly 1.1 percentage points or by 40 percent." Other sources suggest the GDP growth can range from, -0.1% to 1.1%.
As Hamilton the Musical notes, "We need to handle our financial situation." This makes it all the harder. Indeed, it marks the end of a prosperous era in America and makes a new one unlikely any time soon.
© Copyright 2025 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.
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