- Nine conservative economists wrote a letter of support for the GOP tax plan on Monday, saying it would lead to increased economic growth.
- Other economists took issue with the letter’s assumptions and growth projections.
- The letter and blowback are another chapter in the economic arguments over the effects of the Tax Cuts and Jobs Act.
Economists are waging a war of words over whether the GOP tax bill would follow through on one of the biggest promises made by President Donald Trump and Republican leaders.
All along, the GOP and White House have argued that the Tax Cuts and Jobs Act (TCJA) would lead to a major boost in economic growth, helping raise wages for workers and profits for companies.
Those assertions were supported by a letter from nine academic economists to Treasury Secretary Steven Mnuchin that ran in The Wall Street Journal on Monday.
“Would the proposals raise current and future economic activity and generate federal tax revenue that would reduce the ‘static cost’ of the reforms?” they wrote. “This letter explains why we believe that the answer to these questions is ‘yes’.”
The economists, who work at an array of academic institutions and conservative groups, said a decrease in corporate interest rates should increase investment in capital and labour. This would, in theory, boost economic growth.
They also asserted that the federal budget shortfall created by the tax bill would be made up at least in part by increased federal revenues due to the growth.
“The increased growth, in turn, would lead to greater taxable income and federal tax revenues, which would reduce the static cost of lost federal tax revenue from the reform,” the economists wrote.
But the letter from mostly conservative economists – seven of the nine people to sign the letter worked for Republican presidents – drew criticism from more liberal economists.
Jason Furman, the former chair of Council of Economic Advisers under President Barack Obama, attacked the letter on Twitter.
“Disappointed that so many Republican economists would sign on to a letter that completely distorts the evidence on the growth effects of tax cuts,” Furman said, taking issue with the group’s interpretations of the underlying studies they used to come to their assertions.
Paul Krugman, the Nobel-winning economist and New York Times columnist, noted on Twitter that four of the nine members of Monday’s letter also wrote a letter in 2010 to then-Federal Reserve Chair Ben Bernanke.
The 2010 letter said that the Fed’s moves at the time, including the quantitative easing program, would lead to a spike in inflation and “debasement” of the US dollar. Neither of those things occurred.
“Have any of them asked why they were wrong last time, or even admitted having been wrong? No,” Krugman said on Twitter. “So that gives you some idea of how seriously to take their declaration.”
Economists battle over whether tax cuts will lead to growth
The letter is another example of a long-running debate among economists regarding the potential growth benefits of tax cuts in general.
For instance, President Donald Trump’s Council of Economic Advisors released two papers touting the economic impact of the Trump tax plan. One claimed the TCJA’s corporate tax cut would lead to a 3% to 5% GDP boost over the long run, while the other suggested it would boost worker incomes by an average of $US4,000 annually.
Many economists decried those analyses, saying they were based on bad maths and rosy assumptions. Former Treasury Secretary Larry Summers called the CEA’s analysis “some combination of dishonest, incompetent, and absurd.”
Looking at the larger sample size, a survey of top academic economists by the University of Chicago’s Booth School of Business found that an overwhelming percentage believed that the bill would not lead to significantly higher economic growth over the next decade.
According to the survey, 52% of the 42 economists disagreed or strongly disagreed with the GOP notion that the bill will lead to an economic boost, while 36% were unsure. One economist said it would increase growth.
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