Republican hopes to get a tax reform bill through the Senate received a boost on Monday in the form of a letter of support from nine prominent economists.
In a letter addressed to Treasury Secretary Steven Mnuchin, economists Robert Barro, Michael Boskin, John Cogan, Douglas Holtz-Eakin, Glenn Hubbard, Lawrence Lindsay, Harvey Rosen, George Shultz, and John Talor argue that the House and Senate bills would lift economic growth by encouraging investment and lowering the cost of capital.
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.”
The letter argues that faster economic growth would also partly help make up for any revenue shortfall caused by lower tax rates.
“The increased growth, in turn, would lead to greater taxable income and federal tax revenues, which would reduce the static cost of lost federal revenue from reform,” the economists write.
The Congressional Budget Office on Sunday said that the Senate tax bill would increase the budget deficit by $1.4 trillion over a decade. This is within the range of what GOP lawmakers were expecting. Nonetheless, there are concerns that some Republican deficit hawks, such as Senator Bob Corker, might balk at cutting taxes at the cost of greater deficits.
Monday’s letter might help convince lawmakers that the official budgetary projections overstate the likely size of deficits created by the tax cuts.