Political parties and thinkers disagree about tax reform. Quibbl agrees to disagree but wants to know, “What’s actually going to happen?”
By Ben Purcell
Economist Lawrence Summers (left, in President Obama’s Oval Office) and President Trump’s chief economic advisor Gary Cohn (right) think differently about tax reform, to say the least
Still licking its wounds from the failure to repeal Obamacare, the GOP is soon expected to begin another ambitious legislative initiative: tax reform. Congressional Republicans and the Trump administration have been working for months in an effort to agree on a tax reform plan that nearly everyone in the party agrees should lower taxes. The major question is, how, and by how much?
There’s still significant disagreement among Republican leaders about the details of the forthcoming plan. Of course, there’s also major disagreement across the political spectrum about the potential effects of lowering tax rates, especially significantly lowering the corporate tax rate, as the Republican plan is likely to do.
President Trump’s chief economic advisor, the National Economic Council Director Gary Cohn, lauds the economic moves the President has made thus far and believes lowering taxes will only further improve the economy. Specifically referencing the business tax rate, Cohn acknowledges tax cuts reduce government revenue but contends it’s a small price to pay for growth:
“When you lower the corporate rate from 35% down to 15%, that 20% has an enormous multiplier effect in the U.S. economy. Of course we are going to get growth by lowering the business rate.”
How low will the GOP drop the corporate tax rate? Quibbl here.
What about the individual tax rate?
Cohn also recently lamented,
“We haven’t done tax cuts in 31 years. So, to be a part of an administration that gets something done that hasn’t been done for 31 years is enormously challenging, enormously interesting to me.”
The statement references the 1986 Tax Reform Act that was passed under President Reagan, the last comprehensive US tax reform.
Enter former Harvard University president and economist Lawrence Summers. The only thing wrong with Cohn’s line of thinking is everything, according to Summers, a former economic advisor in both the Clinton and Obama administrations. He believes drastic tax cuts alone don’t make effective tax reform. In the Washington Post, Summers recently said that the upcoming Republican plan looks nothing like the reform passed during the Reagan administration:
“The Tax Reform Act of 1986 was all reform, with no net cut. The current effort is mostly cuts, with very little structural reform. TRA 1986 was about raising taxes on corporations. The current effort is about reducing business taxes. TRA 1986 was about facing down well-heeled lobbyists; these groups seem centrally involved in the current effort.”
The economic effects of tax cuts are debatable. We’ll have to agree to disagree. But one way or another, the GOP is slated to release a tax plan in the coming weeks. What will the plan actually include?
How will it impact the deficit?
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