Exactly Backwards April 21, 2025 The way to cut the deficit is to (drumroll, please) INCREASE REVENUE and DECREASE SPENDING. (Duh.) The way to INCREASE REVENUE is to let the tax cuts for corporations and on personal income above $400,000 expire . . . and to fully fund the IRS to make sure people and corporations pay what they owe. (Not only would the IRS collect more revenue from delinquent auditees; it would also collect more from those it didn’t audit once word got around there was a real risk of penalties for underpayment.) –> INSTEAD, Trump and his cowed Republican senators have it exactly backwards: working to renew tax cuts for those who don’t need them . . . and to further cripple the IRS. It’s insane. On top of that, the unnecessary recession their tariffs are gliding us into — or possibly worse, if Smoot-Hawley is any guide — will cut tax revenues while raising safety-net outflows . . . thus worsening our deficits. The way to DECREASE SPENDING is not to decimate the government, allow children starve and disease to spread. It is to lower interest rates. (We spend hundreds of billions more on interest than on defense; a trillion more than on the global soft-power and moral high ground USAID provided us.) And the way to lower interest rates is to lower inflation (which Biden handed off to Trump at just a hair over the Fed’s 2% target). –> INSTEAD, Trump and his cowed Republican senators have it exactly backwards: raising inflation by imposing tariffs and by shrinking the labor supply through mass deportation. Meanwhile, the Trump team argue that cutting corporate taxes will create jobs. My brilliant friend Simon Yates, to whose new Substack I’ve just subscribed, explains why that’s wrong: Does Cutting the Corporate Tax Rate Create Investment? Probably not. As the Republicans discuss tax cuts an argument that’s inevitably going to appear is that cutting the tax rate for corporations will create economic growth, and jobs. The argument goes like this: If a company is considering doing ‘Thing A’ (let’s say, building a factory), then it will compare the financials of Thing A against some hurdle rate for investments, X. If Thing A does better than X, then do it. Otherwise not. Hence, if the tax rate is lower, Thing A will have better financials and a greater chance of beating the hurdle rate X. More factories will be built and more jobs created. The problem with this argument is that this isn’t really how companies make decisions. They don’t face absolute, binary decisions like “should we do Thing A or not?” but instead relative decisions like “should we do Thing A or Thing B?”. Thing B might be a very simple alternative like leaving the money in the bank. If the corporate tax rate drops, then this is also more attractive. The company will pay less tax on the interest it earns. So Thing A doesn’t gain any relative advantage. The factory isn’t more likely to be built. What is clear about reducing the corporate tax rate is that less money will go to the government and more will go to shareholders. For somebody like me who’s lucky to be affluent and a shareholder — hey, that’s nice, thank you! But for workers who are looking for a job, beware. The people making this argument don’t have your interests at heart. Join Indivisible. Don’t sell your puts. Have a great week.