Business Regulations Public Policies

The content of this web page is arranged under the following headings:
1. Congressional Review Act
2. Overtime Pay Salary Threshold
3. Oil & Mining Extraction Disclosure Rule
4. Border-Adjustment Tax
5. Supply-Side Economics Reality

1. Congressional Review Act

Environmental regulations finalized since mid-May 2016 may be eligible for repeal under a rarely used law called the Congressional Review Act of 1996. The new Congress, which will convene January 3, 2017, will be able to count back 60 legislative days from the final legislative day of the 2016 Congress to find regulations eligible to be repealed. The earlier the 2016 Congress adjourns, the further back in time lawmakers can go to target the 2016 rules they do not like. The new 2017 Congress will have 45 legislative days to repeal any eligible rule it does not like. The Congressional Review Act, which has been used successfully only once in 20 years, speeds up the repeal process by requiring only a simple majority to undo regulations. That means Senate Democrats cannot mount a filibuster to stop republicans from acting. President Trump is likely to sign that would repeal Obama administration rules. President Obama, not surprisingly, vetoed four resolutions passed by Congress to overturn his regulations. (Source: Article in the USA Today section of The Indianapolis Star on November 16, 2016.)

2. Overtime Pay Salary Threshold

A rule from the U.S. Labor Department to raise the salary threshold for workers eligible for overtime pay from $455 a week to $913 a week was finalized May 2016 and might be repealed under the Congressional Review Act. The overtime rule may be left intact if the U.S. Congress waits until its scheduled end-date of December 16, 2016, to adjourn. (Source: Article in the USA Today section of The Indianapolis Star on November 16, 2016.)

3. Oil & Mining Extraction Disclosure Rule

On February 14, 2017, President Trump signed legislation overturning an anti-corruption measure that required oil and mining companies to disclose their payments to foreign governments. Congressional lawmakers used the Congressional Review Act of 1996 to overturn the rule earlier in the month of February 2017. The rule, implemented by the U.S. Securities and Exchange Commission (SEC), was mandated in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The SEC introduced the rule June 2016 after a court battle. At the time of the rule's introduction, the SEC said it was devised "to advance U.S. policy interests by promoting greater transparency about payments related to resource extraction." (Source: Article in the USA Today section of The Indianapolis Star on February 15, 2017.)

4. Border-Adjustment Tax

The border-adjustment tax is outlined in a plan co-authored by House Speaker Paul Ryan and House Ways and Means Committee Chairman Kevin Brady. The proposal would require U.S. retailers that currently pay taxes only on the profit made from the sale of an imported product to also pay taxes on what it cost to purchase it from abroad. Proponents say the border-adjustment tax will raise revenue that can be offset with lower corporate tax rates while spurring job creation in the U.S. The National Retail Federation forecasts that the tax change would likely lead to clothing and shoe prices increasing roughly 15%, while electronics would potentially cost about 11% more. (Source: Article in the USA Today section of The Indianapolis Star on February 15, 2017.)

5. Supply-Side Economics Reality

“Supply-Side Economics” is a macroeconomic theorythat argues economic growth can be most effectively created by investing in capital and by lowering barriers on the production of goods and services. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices; furthermore, the investment and expansion of businesses will increase the demand for employees and therefore create jobs. Typical policy recommendations of supply-side economists are lower marginal tax rates and less government regulation. Lower tax rates will supposedly result in so much additional economic activity that they will actually increase government revenues, thereby “paying for themselves” and NOT increasing budget deficits.

The Center for American Progress analyzed the United States economic performance over a 30-year period from the 1980s through the 2000s – and concluded that supply-side lower federal taxes aren’t a magical economic cure and that higher federal taxes can coexist with a strong economy. It must be noted that there were obviously other forces at work in our economy besides federal tax policies over this 30-year period. However, three Congressional Budget Office (CBO) analyses also further indicate that lower federal tax rates by themselves will NOT result in so much additional economic activity that they will actually increase federal government revenues and thereby decrease federal budget deficits. Listed next are summaries of the Center for American Progress and three CBO analyses that show supply-side tax cuts will not come close to paying for themselves through increased revenues from additional economic activity.

1. Center for American Progress Issue Brief “The Failure of Supply-Side Economics: Three Decades of Empirical Economic Data Shows That Supply-Side Economics Doesn’t Work” (August 1, 2012). See https://www.americanprogress.org/issues/economy/news/2012/08/01/11998/the-failure-of-supply-side-economics/. Adherents of the economic theory known as supply-side economics contend that by cutting taxes on the rich we will unleash an avalanche of new investment that will spur economic growth, and boost job creation, leading to economic improvements for everyone. In 1981, President Ronald Reagan signed a large tax cut package into law, which lowered the top income tax rate by 20 percentage points and cut taxes for the rich and for corporations. In 1993, President Bill Clinton signed legislation that raised the top marginal income tax rate paid by the wealthy, and also extended Medicare taxes to higher income individuals. Supply-side economic policies returned in force in 2001 with the enactment of tax cuts by President George W. Bush. By every important measure, our nation’s economic performance after the tax increases of 1993 significantly outpaced that of the periods following the tax cuts of the early 1980s and the early 2000s.

1.A. Average annual growth in nonresidential fixed investment was weaker under supply-side policies.
10.5% growth in the 1990s non-supply side era
6.7% growth in the 2000s supply side era
1.4% growth in the 1980s supply side era

1.B. Average annual growth in nonfarm productivity was weaker under supply-side policies.
1.9% growth in the 1990s non-supply side era
1.7% growth in the 1980s supply side era
1.5% growth in the 2000s supply side era

1.C. Average annual growth in real gross domestic product was weaker under supply-side policies.
3.8% growth in the 1990s non-supply side era
3.5% growth in the 1980s supply side era
2.6% growth in the 2000s supply side era

1.D. Average annual growth in overall nonfarm payroll employment was weaker under supply-side policies.
2.6% growth in the 1990s non-supply side era
2.5% growth in the 1980s supply side era
1.5% growth in the 2000s supply side era

1.E. Average annual growth in real median household income was lackluster under supply-side policies.
2.3% growth in the 1990s non-supply side era
1.2% growth in the 1980s supply side era
1.1% growth in the 2000s supply side era

1.F. Average annual growth in real hourly earnings were flat or declined under supply-side policies.
1.0% growth in the 1990s non-supply side era
0.0% growth in the 2000s supply side era
0.5% decline in the 1980s supply side era

1.G. Publicly held debt as a share of gross domestic product rose during both supply-side eras, and fell substantially during the higher-tax period.
Debt fell from 49% to 32% of GDP in the 1990s non-supply side era
Debt rose from 32% to 37% of GDP in the 2000s supply side era
Debt rose from 26% to 49% of GDP in the 1980s supply side era

2. CBO Analysis of the President’s 2014 Tax and Budget Plan (March 2003). See the Wall Street Journal Op-Ed “Dynamic Scoring Finally Ends Debate On Taxes, Revenue” at http://www.freerepublic.com/focus/f-news/882137/posts. Is there a level of taxation where federal income tax cuts pay for themselves by providing such a spark to the economy that government revenues would rise instead of falling? The analysis of President Bush’s 2014 tax and budget plan was the first time that the CBO used “dynamic scoring” to determine the effect of budget and tax changes on overall economic growth and government revenues. This first-time dynamic analysis reveals that the effects of tax cuts are relatively small and can be positive or negative.

2.A. Of the nine different economic models used to analyze the president's plan, only two showed a large improvement in the deficit over the next decade as a result of "supply side" effects. Both those models got their results by assuming that after 2013, taxes would be raised to eliminate the remaining deficit. The theory is that people will work harder between 2004 and 2013 because they know that their taxes will be going up, and will want to earn more money before those tax increases take effect.

2.B. Using the same nine economic models, if the assumption is changed so that government spending falls after 2013 to close the deficit – the outcome preferred by most supply-siders – the the economic benefits disappear. The president's plan would cause the deficit to become slightly wider over the next 10 years than it would have been otherwise.

2.C. In no case does President Bush's tax cut come close to paying for itself over the next 10 years.

3. CBO Economic Budget and Issue Brief “Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates” (December 1, 2005). See https://www.cbo.gov/sites/default/files/109th-congress-2005-2006/reports/12-01-10percenttaxcut.pdf. To illustrate how CBO estimates the economic effects of tax policies, this Brief analyzes the economic and budgetary effects of a 10 percent reduction in the federal personal income tax rates – the rates that are reduced include those on ordinary income, long-term capital gains, dividend income, and the alternative minimum tax. The analysis assumes that no offsetting changes to federal spending or other tax policies are made over the first 10 years following the tax cut, so that the reduction in revenues leads to a net increase in the federal deficit over that period. The analysis findings listed next reveal that the 10 percent personal income tax cut would not come close to paying for itself through increased revenues from additional economic activity.

3.A. Over the first five years, before factoring in any changes in the Gross National Product, the tax cut would lower federal revenues by $466 billion and increase the federal debt service by $56 billion – resulting in a $522 billion increase in the federal budget deficit.

3.B. Over the second five years, before factoring in any changes in the Gross National Product, the tax cut would lower federal revenues by $775 billion and increase the federal debt service by $261 billion – resulting in a $1.036 trillion increase in the federal budget deficit.

3.C. The tax cut is projected to increase Real Gross National Product from 0.5 percent to 0.8 percent on average over the first five years.

3.D. The tax cut is projected to increase Real Gross National Product from 0.2 percent to 1.1 percent on average over the second five years.

3.E. The Real Gross National Product increase from the tax cut is estimated to offset ONLY between 1 percent and 22 percent of the tax revenue loss over the first five years.

3.F. The Real Gross National Product increase from the tax cut is estimated to ADD as much as 5 percent to the tax revenue loss, or offset ONLY 32 percent of the tax revenue loss, over the second five years.

4. CBO Analysis of the President’s 2018 Budget (July 13, 2017). CBO’s estimates of the federal budget deficit under President Trump’s proposals are larger than the Administration’s estimates for each year from 2017 through 2027: see https://www.cbo.gov/publication/52846.

4.A. For the 10-year period in total, CBO’s estimate of the cumulative deficit under the President’s proposals is $3.7 trillion larger than the Administration’s estimate ($6.9 trillion versus $3.2 trillion).

4.B. Nearly all of the cumulative deficit difference is on the revenue side of the ledger: CBO’s estimate of revenues is $3.6 trillion (or 8 percent) lower than the Administration’s.

4.C. Most of the difference between the two sets of revenue estimates, about $3.4 trillion, results from the fact that CBO and the Administration use different economic forecasts – that is, projections of GDP, interest rates, inflation factors, the unemployment rate, and other economic variables.

4.D. In particular, over the 2018–2027 period, CBO’s baseline projection of nominal GDP is about 6 percent lower than the Administration’s.

4.E. CBO also estimates that wages and salaries would be about $6.9 trillion (or 6 percent) lower than the Administration projects, reducing CBO’s estimates of revenues from individual income and payroll taxes below those of the Administration.

4.F. In addition, CBO estimates that domestic economic profits would be about $3.2 trillion (or 15 percent) lower than the Administration estimates, further reducing CBO’s estimates of revenues from corporate income taxes relative to those of the Administration.

THE BOTTOM LINE: Much of the reduction in federal deficits and debt under President Trump’s 2018 budget would be achieved by decreasing 2018-2027 federal spending for health care – $1.25 trillion from repealing and replacing the Affordable Care Act and another $610 billion from “reforming” Medicaid. These federal health care spending reductions would be used to cut federal income taxes for prosperous corporations and wealthy individuals. The Center for American Progress and three CBO analyses cited above verify that it is political exaggeration at best – and purposefully misleading nonsense at worst – to assert that economic growth from the desired supply-side federal income tax cuts (achieved by slashing federal health care spending) would stimulate significant Gross Domestic Product growth, fuel job creation, and increase after-tax worker wages WITHOUT increasing federal budget deficits.

Corporations would first use increased profits from a tax cut for increased executive compensation, stock buybacks, and more stock dividends.

Corporate profits from a tax cut would be spent on automation before new workers are hired. A June 2015 Ball State report reveals that 87 percent of lost U.S. manufacturing jobs from 2000 to 2010 wasn’t due to trade, but productivity gains from automation.

Hiring new workers at higher wages would be the last option for the use of a corporate tax cut.

It is poor public policy to slash Medicaid spending and health insurance subsidies to provide a corporate tax cut that cannot be expected to significantly increase economic growth, job creation, and worker wages.

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This page was last updated on 07/29/17.