openpolitics.com

Tax Cuts Still Don’t Pay for Themselves

You might think a cut in taxes on investment would increase returns to investors in the long run. But the Tax Foundation’s model says that isn’t so — instead, it assumes investment would rise as much as was necessary to bid down pretax returns so that aftertax returns were unchanged. For example, automakers would pay a lower tax rate, but they’d make more cars, flooding the market until profit margins fell enough to fully offset the benefits of the tax cut. This assumption is how the Tax Foundation reaches the conclusion that Rubio-Lee would drive an enormous increase in investment.