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A public policy blog from AEI
Imagine a joint op-ed by Austan Goolsbee, Paul Krugman, Christina Romer, and Larry Summers telling President Hillary Clinton she was bungling a key piece of her economic agenda. Would be a big attention getter.
Now the GOP equivalent might be Team Supply Side: Steve Forbes, Larry Kudlow, Arthur Laffer, and Steve Moore. All highly influential economic thinkers on the right, it’s an antsy group. Earlier this week the New York Times published a buzzy op-ed by the foursome gently scolding the Trump White House for a) prioritizing health reform over tax reform and b) losing focus on the tax issue by scrapping the campaign plan and starting over.
And today’s Wall Street Street Journal piece on the current state of tax reform probably only exacerbates their concerns. FKL&M want the White House to narrowly focus on business tax cuts: Slash rates, allow full expensing of new investment, put a low tax on repatriation of foreign investment, and then move on.
But according to the WSJ, Treasury Secretary Steven Mnuchin said yesterday that while the administration will “very soon” release a plan, it will dramatically overhaul both personal and business taxes. It’s hard not to see Mnuchin’s comments as rebuttal. Oh, and Mnuchin added that the plan “will pay for itself” by boosting economic growth.
Well, at least the supply siders will like the addendum. But it should be noted that revenue neutrality through growth and dynamic scoring would be pretty tough. As the Tax Foundation’s Alan Cole explained on Twitter, “This implies an added 0.9% to growth each year for a decade.” Models suggest that is either very hard or impossible.
Cole makes another point: Any tax-cut only plan, such as the sort favored by FKL&M, avoids a worthwhile fight for deeply reforming the tax code, such as the House GOP has been pushing. Why fight that fight? As Cole rightly argues in a new National Review piece, budget deficits matter, and tax reform would allow Republicans to structure the tax code so that it raises revenue efficiently and fairly to pay for the tax cuts.
Cole: “If Republicans want to pass a more lasting reform, they should include some revenue-raising provisions in the bill. Tax reform is worth it also because Republicans have promised many times to reduce the complexity of the tax code for individuals, curb corporate-tax avoidance, make the code fairer for all, and limit carve-outs for special interests.”
Not that tax reform is easy, especially when the deep planning and advocacy for reform failed to happen during the campaign. So how might this play out? This from Goldman Sachs:
We recently wrote that our view continues to be that tax legislation is likely to become law, but that it is more likely to be a tax cut with limited elements of reform, namely a 25% corporate rate with provisions allowing for low-tax repatriation of foreign profits, incremental base broadening, and no border adjusted tax. However, the timing does appear to be slipping once again; if the legislative focus remains on health legislation through May, a vote on tax reform at the committee level might not occur in the House until July, which could make final enactment of tax legislation before year-end challenging. At this point, we expect that enactment is more likely in Q1 2018 than Q4 2017.
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