March 25, 2016
The four candidates still in the running for the 2016 presidential election have all offered tax reform proposals. These plans have been widely analyzed. The analyses have identified who would pay more, who would pay less, and the projected impact upon the federal tax take (the percent of GDP that the federal tax system brings in). Unfortunately, the analysts have glossed over the only thing that truly matters about any tax plan: its impact upon economic growth.
Growth matters because the future matters, and because both human psychology and the financial markets base their assessments of the present (e.g., are things good or bad; asset market values) largely upon expectations regarding the future.
Quantitatively, the future is taken into account by performing present value calculations. The financial markets, which finance federal deficits and determine the value of the assets in pension plans, run on present value. And, present value calculations show that the growth rate of real GDP (RGDP) is the only thing that matters at all.
Here is an illustration. Over the entire economic history of the U.S. (1790 - 2015), RGDP growth has averaged 3.66%. If Bernie Sanders, rather than George Washington, had been our first president, and if his socialist economic policies had cost us just 0.1 percentage point of growth (which is the smallest increment that the Bureau of Economic Analysis can measure), 2015 GDP would have been $3.44 trillion (19.2%) lower.
Read the full article at RealClearMarkets.com: Growth Is All That Matters, and Cruz's Tax Plan Would Generate the Most