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An Unpalatable Tax Plan

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President Trump and Republican leadership argue their tax proposal will significantly increase economic growth, but not add to deficits and debt load. They are wrong on both counts.

Growth will initially come from deficit-financed tax cuts, given full employment, stronger inflation and higher interest rates will result. The benefit of lower tax rates on businesses are washed out by higher interest rates.

Their plan doesn’t pay for itself. Government borrowing increases, causing interest payments on accumulating debt to rise.

Tax reform is necessary, but to boost economic growth, it must be deficit-neutral. It’s difficult seeing it get done.

Mark Zandi, Chief Economist, Moody’s Analytics

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