Nine Economists Write Letter in WSJ: ‘Tax Reform Will Boost GDP by 3-4%’

By November 28, 2017General, Shopfloor Main

Nine respected economists, including former CBO Director Douglas Holtz-Eakin and former Director of the National Economic Council Lawrence Lindsey, penned a letter to Treasury Secretary Steve Mnuchin this weekend explaining how the tax reform legislation in Congress will grow the economy and boost GDP 3 to 4 percent in the long term.

The letter, which ran in The Wall Street Journal, explains how key elements of the tax reform plan will encourage more investment in the United States while helping U.S. firms expand:

Several of the proposals that have emerged in the current debate are key to lowering the user cost of capital. For example, expensing, which allows firms to deduct the full cost of investment at the time it is made, lowers the user cost of capital relative to depreciation over time. A lower corporate tax rate also lowers the user cost of capital, which not only induces U.S. firms to invest more, but also makes it more attractive for both U.S. and foreign multinational corporations to locate investment in the United States.

The economists explain in the letter how the legislation’s changes to taxation of business income will help smaller businesses grow as well:

In recognition of the fact that non-corporate business income is substantial in the United States, both bills would reduce taxation of non-corporate business income and increase the amount of capital expensing allowed. While difficult to quantify, as the bills specify different effective tax rates, these provisions would increase investment and GDP above the level associated with the corporate tax changes discussed above.

Tax reform is a win for the economy and American workers, and manufacturers agree. In the National Association of Manufacturers’ (NAM) latest Manufacturers’ Outlook Survey, 64 percent of manufacturers said they would expand their business and increase capital spending if Congress passes tax reform. Fifty-seven percent said they would hire more workers, while 52 percent said they would increase wages.

Tax reform will benefit both small and large manufacturers, which is why the NAM is resolutely pushing Congress to pass the boldest tax bill in three decades.

Other economists who signed the letter include Robert J. Barro, Paul M. Warburg professor of economics, Harvard University; Michael J. Boskin, chairman of the Council of Economic Advisers under President George H.W. Bush; John Cogan, deputy director of the Office of Management and Budget under President Ronald Reagan; Glenn Hubbard, chairman of the Council of Economic Advisers under President George W. Bush; Harvey S. Rosen, chairman of the Council of Economic Advisers under President George W. Bush; George P. Shultz, secretary of state under President Ronald Reagan; and John. B. Taylor, undersecretary of the treasury for international affairs under President George W. Bush.

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