Nov 28, 2017

Don’t Undermine Tax Reform with Counterproductive “Trigger” Tax Hikes

Post by Freedom Partners

Arlington, VA – Freedom Partners Chamber of Commerce issued the following statement in response to reports that some lawmakers are considering including automatic tax hikes in the Tax Cuts and Jobs Act.

Freedom Partners Executive Vice President Nathan Nascimento:

“It’s hard to imagine a more counterproductive policy than imposing automatic tax hikes on an economy that isn’t growing as fast as expected. Furthermore, the very threat of looming tax hikes could be a drag on growth all by itself. If revenue is a concern, there is plenty of corporate welfare and wasteful spending left to cut. History has shown that tax cuts consistently lead to increases in federal revenue as a result of robust economic growth. We’re hopeful Congress won’t undermine the many positive reforms in the Senate bill with this self-destructive policy.”

A recent Wall Street Journal editorial noted there’s reason to be wary of “inherently speculative” CBO estimates that have “typically underestimated” the economic growth and revenue returns from tax cuts.

“A classic example is the 2003 cut in the tax rate on capital gains. Dan Clifton of Strategas Research notes that in January 2004, eight months after the tax cut passed, CBO predicted $215 billion in capital-gains revenue through 2007. The actual figure? $377 billion. CBO underestimated economic growth and how much investors would cash in their gains,” the editorial board wrote.

In fact, CBO’s current estimates for this year’s tax reform proposals are based on the projection of a confounding average economic growth of 1.9% a year.

“[T]he U.S. economy has never grown that slowly for so long,” the Wall Street Journal explains. “CBO says that every 0.1% increase in GDP adds about $270 billion in revenue over 10 years. That means a mere four years at 3% growth—the U.S. historical norm—could fill a $1 trillion hole. An average growth rate of even 2.4% over the decade would more than fill the hole.”

Read more here.