Tax Bills Based on Unsound Economics, Unwise Fiscal Policy

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WASHINGTON — With the House and Senate now considering separate plans to overhaul the tax code, The Concord Coalition urges lawmakers to reconsider their current approaches, notably the idea of deficit-financed tax cuts.

“The two plans differ on some important provisions such as the starting date for a corporate income tax cut and the full deductibility of state and local taxes,” says Robert L. Bixby, Concord’s executive director. “Even if such differences can be worked out between the House and Senate, there would still be three fundamental problems: Both plans are based on unsound economic assumptions, unwise fiscal policy and undesirable gimmicks.”

The federal debt totals more than $20 trillion, and under current laws the government is already on track to add another $10 trillion. The congressional tax plans would add another $1.5 trillion over the next 10 years, and that figure could easily rise as the result of gimmicks such as the expiration of certain provisions that would likely be extended.

Supporters of the plans say that a major tax cut is needed to stimulate the economy even if it grows the debt. But the economy is growing, unemployment and interest rates are low, and corporate profits and the stock market are high.

“Given these favorable circumstances,” Bixby says, “a tax cut is unlikely to provide much of an additional economic boost in the short term. Over the long term, the added debt from deficit-financed tax cuts would constrain economic growth.”

“As for the idea that tax cuts pay for themselves,” he added, “there is no evidence, projection or credible economic theory to back this up. It is merely wishful thinking.”

The House and Senate plans are fiscally unwise because they would deliberately cut revenues at a time when government spending on retirement and health care programs — notably Social Security and Medicare — is steadily rising as more and more baby boomers retire.

Concord has long called for reforms that would simplify the tax code and make it more economically efficient. Many special provisions that favor some taxpayers over others should be reduced or eliminated. In that regard, some of the ideas put forward by the House and Senate deserve consideration.

But true tax reform should improve long-term economic growth, avoid gimmicks that hide costs, and raise enough revenue to reduce projected deficits rather than increase them.

Media contact: Steve Winn, [email protected], (703) 254-7828

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