Steven Hofman: Why ‘yes’ on tax reform
November 30, 2017
Candidate for U.S. House of Representatives from our state's 3rd District, Diane Mitsch Bush, proudly calls herself a "policy wonk". So from one policy wonk to another, I'd like to respond to her Pilot column of Nov. 28, "Not so fast on tax cut act."
Tax reform has two primary goals — simplify the code to make it easier and less costly for most Americans to file their returns and eliminate distortions in economic decision-making that otherwise stunt the capacity of our economy to grow at maximum non-inflationary rates while also enhancing the opportunity for growth in employment and real wages.
Rather than focusing on whether the current House and Senate plans achieve these goals, including ending the last 10 years of sub-2 percent annual GDP growth and sub-3 percent annual wage growth, Ms. Mitsch Bush cobbles together an array of Democratic National Committee talking points with focus-group tested political appeal.
The terms "many economists" and "most economists" are used to give legitimacy to a number of assertions made by Ms. Mitsch Bush, including that the Republican plans will fail to "jumpstart the economy."
But I would refer Pilot readers to an analysis prepared by nine of the nation's most noted economists, including a former director of the Congressional Budget Office, three former chairmen of the President's Council of Economic Advisors, a former vice chair of the Federal Reserve, a former deputy director of the Office of Management and Budget, professors of economics from Harvard and Stanford and a former Secretary of the Treasury. Their analysis, under the title "How Tax Reform Will Lift the Economy" was published in the Nov. 27 edition of the Wall Street Journal.
Contrary to Ms. Mitsch Bush's no doubt analytically informed conclusion that tax reform is a give-away to the rich and giant corporations, these economists conclude "that the individual tax base broadening embodied in the proposals would enhance economic efficiency by confronting most households with lower marginal tax rates. In addition, fairness would be served by reducing differences in the tax treatment of individuals with similar incomes, and simplification by reducing the number of individuals who itemize for federal tax purposes."
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On the issue of jumpstarting GDP growth to more historic levels of 3 percent annually, which for every increase of 0.1 percent in GDP adds about $270 billion in federal revenue over 10 years, these economists assert: "there is a substantial body of research suggesting that fundamental tax reform of the type being proposed would have an important effect on the long-run GDP." They suggest increases ranging from 3 to 4 percent in total depending on specific provisions related to business expensing.
Ms. Mitsch Bush's column also spent much space picking apart select provisions in both overall plans. Ironically, her silence was striking on the issue of the elimination of the deduction of state and local taxes as a trade-off for lower individual marginal tax rates contained in both the House and Senate plans. I would have hoped, given her desire to represent the interests of the 3rd District in Congress, she offered praise to Republicans for eliminating the subsidy that taxpayers from Colorado and other lower-taxing, lower-spending states provide to states that use the federal deduction as cover to tax their citizens at rates lower than otherwise necessary to meet their spending habits.
I would also point out that by eliminating these deductions, as well as capping the mortgage deduction at $500,000 as contained in the proposed plans, it's the Republicans not the Democrats who are sticking it to the rich who are overwhelmingly the taxpayers taking advantage of such deductions. One would think that if "we need to level the playing field" as asserted by Ms. Mitsch Bush, her column would have had a kind word or two for these two provisions.
Lastly, a couple of thoughts about Ms. Mitsch Bush's stated concern for the so-called $1.4 trillion this bill will add to the deficit.
The deficit and the debt do matter. That is my view and the view of most economists, both Democrats and Republicans. The debate is over how much they matter. But it is not unfair to ask where was Ms. Mitsch Bush and her Democratic friends when President Obama was doubling the debt to over $19 trillion during his two terms. Only now, with a Congressional Budget Office projection of $140 billion added to the deficit annually over the next 10 years, have they joined the line of deficit hawks.
Politics aside, CBO's projection assumes only 1.9 percent annual GDP growth over that same 10 years. If that is the growth confined to our future by continuing policies of the recent past, then whatever concerns Ms. Mitsch Bush rightly or wrongly raises about tax reform today will pale in comparison to tomorrow's reality of an underperforming economy and its impact on each and every American.
We must do better, and as Republicans in Congress are trying to assert in passing tax reform, we can do better. As I said, from one policy wonk to another.
Steven Hofman, a full-time resident of Steamboat Springs, is a former director of research and policy for the Republican leadership in the U.S. House of Representatives.