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Here is your daily round-up of news and analysis to keep you informed as tax reform works its way through Congress.
In the news
Wall Street Journal. Robert J. Barro, Michael J. Boskin, John Cogan, Douglas Holtz-Eakin, Glenn Hubbard, Lawrence B. Lindsey, Harvey S. Rosen, George P. Shultz, and John. B. Taylor: “How Tax Reform Will Lift the Economy”
The present debate over tax reforms proposed by President Trump’s administration and embodied in bills that have passed the House of Representatives and the Senate Finance Committee has raised the basic question of whether the bills are “pro-growth”: Would the proposals raise current and future economic activity and generate federal tax revenue that would reduce the “static cost” of the reforms? This letter explains why we believe that the answer to these questions is “yes.”
Economists generally think of fundamental tax reform as a set of tax changes that reduces tax distortions on productive activities (for example, business investment and work) and broadens the tax base to reduce tax differences among similarly situated businesses and individuals. Fundamental tax reform should also advance the objectives of fairness and simplification.
The quest for such fundamental tax reform has been pursued by policy makers and economists for decades. Examples include the Tax Reform Act of 1986, proposals for reducing the double taxation of corporate equity by the Treasury Department and the American Law Institute (enacted in part in 2003), the “Growth and Investment Plan” from President George W. Bush’s Advisory Panel on Federal Tax Reform, and arguments from President Obama’s administration to lower corporate tax rates. The proposals emerging from the House, Senate, and President Trump’s administration, fall squarely within this tradition.
Wall Street Journal: “Tax Reform, Growth and the Deficit”
The Senate may vote as soon as this week on tax reform, and the outcome hangs on a few GOP holdouts. Two worries of the fence-sitters are how much the reform will improve the economy and whether it will add to the federal deficit. Let’s examine these concerns against the budget math and economic evidence.
Start with the fact that the GOP budget outline allows for a net tax cut of $1.5 trillion over a decade on a statically scored basis thanks to a deal brokered by Senators Pat Toomey and Bob Corker. Democrats and their media chorus are using that number to claim that reform will bust the budget and add to the federal debt. This comes with ill grace from people who cheered Barack Obama’s doubling of the national debt in eight years, but it’s also overwrought.
The actual budget hole is smaller than $1.5 trillion because the GOP budget is scored on a “current law” baseline. This assumes that tax breaks that are “current policy” will expire and more revenue will flow to Treasury. This is worth more than $400 billion over 10 years, which means the budget “hole” is closer to $1 trillion out of the $43 trillion the Congressional Budget Office projects in revenues over the next decade. In other words, this is a modest net tax cut even assuming no additional economic growth.
Inside Tucson Business. Lea Márquez Peterson: “A father-daughter discussion on tax reform”
My father was skeptical when he first heard about the nation’s tax reform debate. He’s a Democrat now, but also a former Reagan Republican who lived through the modification of the tax deduction changes of the 1980’s. As a retired business man in his 70’s, he scoffed at the idea that Congress could take action that would serve individuals, while also while also reducing taxes on corporate America.
I argued that we face a once-in-a-generation chance to conduct tax reform. If we do it right, it could be one of the single most important steps to driving economic growth for our country. As a chamber president, I work daily with businesses from all industries who could gain from significant tax reform. Simplifying and clarifying our tax system for businesses would go a long way in stimulating investment and new hires in our country.
One of the main differences between Republicans and Democrats is that Republicans, in general, favor less government and more tax cuts. That’s why I’m pleased to see us moving forward on a plan for tax cuts, and why I hope to vote to pass such a cut in the coming weeks.
From the U.S. Chamber
Recently some Senators have raised concerns about the deficit impact of the pending tax reform bill. Even though the weight of expert opinion strongly suggests the revenue gains from additional growth should erase federal deficit concerns while providing a tidy fiscal windfall to state and local government coffers, some are now suggesting a fiscal trigger in the event the projected revenue gains fail to materialize. While one can appreciate the intentions, the fact remains a fiscal trigger is a terrible idea.
J.D. Foster: “Tax Reform’s Growth: A Balm for Deficit Worries”
Congress is perfecting a profoundly pro-growth tax reform. To paraphrase a famous car commercial of years past, “This ain’t your father’s tax reform.” It’s much better. Even so, concerns linger over the legislation’s advertised 10-year $1.5 trillion sticker price. We should think about tax reform’s sticker price the same way we look at a new car’s sticker price – as the starting point toward a much lower drive-away price.
All credible evidence considered, the Tax Cuts and Jobs Act as passed by the House and under consideration in the Senate would be reasonably expected to increase Gross Domestic Product by between 3% and 4%, and likely much more if the expensing provision is extended by future Congresses. This additional growth from tax reform and its consequent revenue effects will negotiate down tax reform’s federal budget sticker price essentially to insignificance. Even better, with a larger economy the total fiscal effect including state and local revenues is almost certainly a substantial gain. For example, for every $100 billion in federal revenue feedback, in the aggregate state and local governments are likely to gain about $60 billion, leaving a clear revenue gain from tax reform when considering all levels of government.