TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, September 28, 2017

Bartlett: I Helped Create The GOP Tax Myth. Trump Is Wrong: Tax Cuts Don’t Equal Growth

Washington Post op-ed:  I Helped Create the GOP Tax Myth. Trump Is Wrong: Tax Cuts Don’t Equal Growth, by Bruce Bartlett:

Four decades ago, while working for Rep. Jack Kemp (R-N.Y.), I had a hand in creating the Republican tax myth. Of course, it didn’t seem like a myth at that time — taxes were rising rapidly because of inflation and bracket creep, the top tax rate was 70 percent and the economy seemed trapped in stagflation with no way out. Tax cuts, at that time, were an appropriate remedy for the economy’s ills. By the time Ronald Reagan was president, Republican tax gospel went something like this:

  • The tax system has an enormously powerful effect on economic growth and employment.
  • High taxes and tax rates were largely responsible for stagflation in the 1970s.
  • Reagan’s 1981 tax cut, which was based a bill, co-sponsored by Kemp and Sen. William Roth (R-Del.), that I helped design, unleashed the American economy and led to an abundance of growth.

Based on this logic, tax cuts became the GOP’s go-to solution for nearly every economic problem. Extravagant claims are made for any proposed tax cut. Wednesday, President Trump argued that “our country and our economy cannot take off” without the kind of tax reform he proposes. Last week, Republican economist Arthur Laffer said, “If you cut that [corporate] tax rate to 15 percent, it will pay for itself many times over. … This will bring in probably $1.5 trillion net by itself.”

That’s wishful thinking. So is most Republican rhetoric around tax cutting. In reality, there’s no evidence that a tax cut now would spur growth. ...

The flip-side of tax cut mythology is the notion that tax increases are an economic disaster — the reason, in theory, every Republican in Congress voted against the tax increase proposed by Bill Clinton in 1993. Yet the 1990s was the most prosperous decade in recent memory. At 37.3 percent, aggregate real GDP growth in the 1990s exceeded that in the 1980s.

Even if they had released a complete plan — not just the woefully incomplete nine-page outline released Wednesday — Republicans have failed to make a sound case that it’s time to cut taxes.

Nor have they signaled that they’ll commit to a viable process. It’s worth remembering that the first version of the ’81 tax cut was introduced in 1977  and underwent thorough analysis by the CBO and other organizations, and was subject to comprehensive public hearings. The Tax Reform Act of 1986 grew out of a detailed Treasury study and took over two years to complete.

Rushing through a half-baked tax plan, in the same manner Republicans tried (and failed) to do with health-care reform, should be rejected out of hand. As Sen. John McCain (R-Ariz.) has repeatedly and correctly said, successful legislating requires a return to the “regular order.” That means a detailed proposal with proper revenue estimates and distribution tables from the Joint Committee on Taxation, hearings and analysis by the nation’s best tax experts, markups and amendments in the tax-writing committees, and an open process in the House of Representatives and Senate.

There are good arguments for a proper tax reform even if it won’t raise GDP growth. It may improve economic efficiency, administration and fairness. But getting from here to there requires heavy lifting that this Republican Congress has yet to demonstrate. If they again look for a quick, easy victory, they risk a replay of the Obamacare repeal fight that wasted so much time and yielded so little.

http://taxprof.typepad.com/taxprof_blog/2017/09/bartlett-i-helped-create-the-gop-tax-myth-trump-is-wrong-tax-cuts-dont-equal-growth.html

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Comments

My sense is that when taxpayers, no matter their level of income, have little income left over after taxes they consume less, invest in their businesses less, save less for retirement (and reinvestment). That is the current system. The result is a stagnant economy. A robust economy, on the other hand, will produce more revenue for all government entities. Government entities, on the other hand, including the tax writers, should refrain from inserting provisions in law towards guiding behavior. For example the deductions for charity and home mortgage interest. Yes, these are incentives for charitable giving and home ownership. In the case of charity, however, it is the government that is doing the giving. In the case of home mortgage interest the lenders receive money from the government and additionally are able to gain a higher interest rate than they otherwise would. Similarly a deduction for tuition is no more than a check from the government to the learning institutions. And sadly allows said institutions to increase their tuition. It is government intruding into the world of behavior modification that has led to massive deficits. Getting rid of such intrusions in the tax code would be a good start, a good example.

Posted by: Ripper | Sep 29, 2017 2:00:42 AM

Ah yes, regular order.

When we are talking about proposals that will impose burdens on taxpayers, any route to passage is acceptable and we must just pass the legislation to see what is in it.

When we are talking about proposals that will unburden taxpayers, regular order!

I’d have greater faith in regular order if it meant something other than rentseekers and lobbyists spending two or three years ensuring that their itches get scratched.

Posted by: Curmudgeonly Ex-Clerk | Sep 29, 2017 7:34:08 AM