President Trump’s nominee for chairman of the Council of Economic Advisers (CEA), Kevin Hassett, appeared before the Senate Banking, Housing and Urban Affairs Committee for his confirmation hearing on Tuesday. The nomination of Hassett, an American Enterprise Institute economist, received broad bipartisan support from dozens of respected economists, including all four CEA chairs who served in the Obama Administration.
The chairman of the CEA will be particularly important to the Trump administration given its stated desire to pursue tax reform and its recent budget proposal, which promised sustained economic growth of 3 percent per year within a few years.
Should these projections prove overly optimistic, as most independent analysts believe they will, the result would be large fiscal shortfalls that would increase the nation’s debt burden. It is thus critical that the administration make economic policy decisions based on realistic and informed premises.
Hassett articulated a desire to provide the president with exactly that, emphasizing in his testimony his commitment to “gather evidence and not just rely on theory.” When asked by Chairman Mike Crapo (R-Idaho) if 3 percent economic growth was a reasonable target, Hassett noted that while Americans had become accustomed to such growth in the past, slower labor force growth, capital stock growth, and technological innovation in recent years made such growth difficult to attain in the future.
Hassett did say, however, that he believed such growth could be possible with the right set of policies. He noted that a National Bureau of Economic Research survey of economists found that the revenue-neutral 1986 tax reform generated additional growth of roughly 1 percent per year. He argued that this would be enough to cross the 3 percent threshold going forward under current projections, though he considered this estimate to be on the high end. Hassett also made clear, in response to a question by ranking member Sen. Sherrod Brown (D-Ohio), that this growth would only be possible with real, comprehensive tax reform and not just an across-the-board tax cut.
In fact, Hassett later said that lawmakers could boost growth by addressing the nation’s long-term fiscal challenges and removing “uncertainty about what the future holds because we haven’t fully funded the promises that we’ve made.” Hopefully they will heed his advice.