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Another Look at Tax Reform and Economic Growth

With the Republican tax package now finalized and coming to a vote in both houses of Congress, a debate has been raging over the bill's possible growth effects. In that debate, those who oppose the package seem to be underestimating the outsize impact of equipment investments.

STANFORD – In late November, a group of economists, including me, published an open letter to US Secretary of the Treasury Steven Mnuchin in the Wall Street Journal, in which we offered an evaluation of the positive growth effects of the Republican tax package that is now coming to a vote. Former Treasury Secretary Larry Summers and former Chair of the Council of Economic Advisers Jason Furman, raised several technical questions about our conclusions. We responded. Another signatory, Harvard University’s Robert Barro, then published a deeper elaboration of the tax plan’s growth effects here at Project Syndicate, to which Summers and Furman offered a response.

Summers and Furman originally suggested that we should leave estimations of the tax plan’s growth effects to the career government revenue scorers. “Instead of being used to justify this tax bill,” they later wrote, “Barro’s insights could have helped to shape a much better tax bill.” Rather than revisit the technical issues to which we already responded, I want to offer a few additional thoughts that might contribute to a broader perspective.

First, on the question of whether or not to pass this tax bill, Summers and Furman, like those of us they are criticizing, have enough experience in policymaking to know that the end product usually diverges from what economists would consider ideal. Needless to say, plenty of policies enacted during President Barack Obama’s administration, in which they admirably served, fit that description, as do others from prior administrations.