The changes to US taxes that were approved late last year have drawn acclaim and criticism, but in most cases, both those who view the tax changes positively and those who view the tax changes negatively are missing two important points.

Most criticism of the tax changes boils down to one of three issues. The first is that the tax cuts favor the rich. This is true, but any meaningful tax cut will have to favor the people who pay most of the tax. Furthermore, contrary to the Keynesian belief system a tax cut will bring about the greatest long-term benefit to the overall economy if it favors people who are more likely to save/invest the additional income over people who are more likely to immediately spend the additional income on consumer items.

The second criticism is that corporations, the main beneficiaries of the tax changes, will invest only a minor portion of their additional corporate profit in employment-generating business growth. This criticism is valid as far as it goes, because most large, listed corporations will use the additional income for stock re-purchases and dividend payments, while most small businesses will not be presented with new expansion potential by virtue of receiving a boost to their after-tax profits.

The third area of criticism is that the tax cuts will result in a large increase in the government’s debt, in effect meaning that the government is swapping a promise to steal less money from the private sector in the near future for a promise to steal more money from the private sector in the distant future. Again, this is true.

Those who view the tax changes in a positive light assert that corporate America will respond to the lowered taxes by making large additional investments in growth. Also, some supporters of the tax cuts either invoke the fictitious “Laffer Curve” to argue that the tax cuts will lead to higher government tax revenue and thus pay for themselves or argue that government debt is never repaid and therefore that an increase in government debt doesn’t matter.