11.27.17

Economists Laud Pro-Growth Tax Reform

ECONOMISTS: ‘The House And Senate Finance Bills Would Achieve’ ‘Pro-Growth Objective’

 

WALL STREET JOURNAL: “…a letter from some of the country’s most distinguished economists making the case that the House and Senate reforms will significantly raise U.S. growth potential.” (Editorial, “Tax Reform, Growth and the Deficit,” Wall Street Journal, 11/27/2017)

“Dear Mr. Secretary: 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.’” (9 Economists, Letter To Sec. Mnuchin, 11/25/2017)

  • “Confirming a Pro-Growth Objective Is Important for the Path Forward: You have consistently stressed that the objective of tax reform should be to enhance prospects for increased economic growth and household incomes. We agree with this objective, which is consistent with the traditional norms of public finance going back to Adam Smith. We believe that the reforms embodied in the House and Senate Finance bills would achieve this objective. The increased growth, in turn, would lead to greater taxable income and federal tax revenues, which would reduce the static cost of lost federal tax revenue from the reform.” (9 Economists, Letter To Sec. Mnuchin, 11/25/2017)

 

INDIVIDUAL TAX REFORM: ‘Offers … Positive Economic Effects,’ ‘Increasing The Reward For Work’

“Lowering Individual Tax Rates Also Offers Generally Positive Economic Effects.” (9 Economists, Letter To Sec. Mnuchin, 11/25/2017)

“The House and Senate bills also contemplate a number of individual tax provisions that can affect economic activity and incomes. In recognition of the fact that non-corporate business income is substantial in the United States, both bills would reduce taxation of non-corporate business income… these provisions would increase investment and GDP above the level associated with the corporate tax changes discussed above. Also on the individual side, both the House and Senate bills reduce marginal tax rates on labor income for most taxpayers, increasing the reward for work.” (9 Economists, Letter To Sec. Mnuchin, 11/25/2017)

 

CORPORATE TAX REFORM: ‘Will Increase Economic Activity,’ Increase Long Run GDP By 3 To 4%

“Reducing Corporate Tax Rates, as Proposed, Will Increase Economic Activity.” (9 Economists, Letter To Sec. Mnuchin, 11/25/2017)

“…there is a substantial body of research suggesting that fundamental tax reform of the type being proposed would have an important effect on long-run GDP. We view long-run effects of about 3% assuming five years of full expensing, and 4% assuming permanent full expensing, as reasonable estimates.” (9 Economists, Letter To Sec. Mnuchin, 11/25/2017)

  • “According to one leading model using an alternative framework, the proposal would increase the U.S. capital stock by between 12% and 19%, which would raise the level of GDP in the long run by between 3% and 5%.” (9 Economists, Letter To Sec. Mnuchin, 11/25/2017)
  • “Yet another model, this one used in the analysis of the ‘Growth and Investment Plan’ in the 2005 President’s Advisory Panel on Federal Tax Reform, found that a business cash-flow tax with expensing and a corporate tax rate of 30% would yield a 20.4% increase in the capital stock in the long run and a 4.8% increase in GDP in the long run.” (9 Economists, Letter To Sec. Mnuchin, 11/25/2017)

 

Letter Signed By

  • Robert J. Barro, Paul M. Warburg Professor of Economics, Harvard University
  • Michael J. Boskin, Tully M. Friedman Professor of Economics, Stanford University; Chairman of the Council of Economic Advisers under President George H.W. Bush
  • John Cogan, Leonard and Shirley Ely Senior Fellow, Hoover Institution, Stanford University; Deputy Director of the Office of Management and Budget under President Ronald Reagan
  • Douglas Holtz-Eakin, President, American Action Forum, former director of the Congressional Budget Office
  • Glenn Hubbard, Dean and Russell L. Carson Professor of Finance and Economics (Graduate School of Business) and Professor of Economics (Arts and Sciences), Columbia University; Chairman of the Council of Economic Advisers under President George W. Bush
  • Lawrence B. Lindsey, President and Chief Executive Officer, The Lindsey Group; Director of the National Economic Council under President George W. Bush
  • Harvey S. Rosen, John L. Weinberg Professor of Economics and Business Policy, Princeton University; Chairman of the Council of Economic Advisers under President George W. Bush
  • George P. Shultz, Thomas W. and Susan B. Ford Distinguished Fellow, Hoover Institution, Stanford University; Secretary of State under President Ronald Reagan; Secretary of the Treasury under President Richard Nixon
  • John. B. Taylor, Mary and Robert Raymond Professor of Economics, Stanford University; Undersecretary of the Treasury for International Affairs under President George W. Bush (9 Economists, Letter To Sec. Mnuchin, 11/25/2017)

 

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Related Issues: Taxes, Middle Class, Economy, Tax Reform