December 13, 2017 — Evidently House and Senate Republicans today agreed on a tax bill. It is really awful. If you want to understand why economists are confident that the tax cuts will not pay for themselves and why Republicans are disingenuous to claim otherwise, I recommend what Jason Furman and Larry Summers have been writing, e.g., in this column in the Washington Post.
The angle I have focused on over the last two weeks is the light shed on the tax plan by the historical precedents of several decades. Here is a Table of Contents, with links for potential watching, listening or reading.
- Podcast: “Measuring the GOP’s Tax Plan,” Project Syndicate, Dec.12.
The current tax bill strikes out by all five criteria: 1) Fiscal responsibility (it’s budget-busting); 2) Income distribution (the benefits go to the rich); 3) Process (rushed and partisan); 4) Economic efficiency (it widens more corporate tax loopholes than it cuts); and 5) Timing (both cyclically and otherwise).
- Video (60 seconds): “When is the Right Time to Cut Taxes?” HKS, Dec. 3.
This is probably the worst-timed major tax cut in history. At least the tax cuts of 1981 and 2001 came in a year when some fiscal stimulus was appropriate.
- Written: “To Understand the Tax Reform Bill, Use Good Old Math and History,” The Hill, Dec.10. 2017.The Republicans seem intent on repeating the cycles of 1981-1991 and 2001-2010 all over again: They refuse to deal with the hole in the roof when the sun is shining, but will suddenly rediscover the urgency of fixing it when the storm hits and repair is most difficult.
- “Do Current GOP Tax Reform Proposals Resemble Reagan’s Tax Reforms?” Econofact, Nov. 29, 2017. g., “How the GOP tax overhaul compares to the Reagan-era tax bills,” PBS Newshour, Dec. 4, 2017. The 1986 tax bill was a model of how to do fiscal reform and the 1981 tax cut was a model of how not to do it. The 2017 reform emulates the less worthy of the two precedents.
- “Which Reagan Tax Reform is This One Like?” Views on the Economy and the World blog, 27.
More on Reagan & taxes. When the 1981 tax cuts turned out not to pay for themselves, but rather blew up the budget deficit, the Reagan White House adjusted course by raising taxes in 2002 and thereafter, enough to pay the interest on the debt that had been run up in the meantime.
- “Reagan’s Tax Reforms Revisited,” Project Syndicate, Nov. 24.
Unfortunately, the current tax legislation resembles the partisan, fiscally-irresponsible and distributionally-regressive Reagan tax cuts of 1981, not the bi-partisan, revenue-neutral Reagan tax reform of 1986.