Professor DeLong Says Tax Bill Has 70% Chance of Passing | Bloomberg Daybreak Asia 2017-12-01
Professor DeLong Says Tax Bill Has 70% Chance of Passing: From 2017-12-01: Not a transcript but much more what I wish I had said—that is, heavily edited and revised to increase clarity, decrease stupidity, and file a little bit of the ragged stream-of-consciousness rough edges off.
Nevertheless, holds up very nicely, no? (BTW, this is my angry face):
There are still many potential stumbling blocks in the way of the high-end tax cut bill currently inching its way through the senate. The current issue is the so-called "trigger"—the provision of the bill that would eliminate the tax cuts if the federal deficit turned out to come in high. Apparently the trigger has failed the so-called "Byrd Bath" as the Parliamentarian removes pieces of the bill that do not qualify for the special un-filibusterable Reconciliation process. The "trigger" has been removed from the bill. The bill's proponents are frantically trying to figure things on the floor—frantically trying to come up with a substitute that would be acceptable both to the small number of members of the Republican congress who are more deficit hawkish and also to the larger number of members in the Republican caucus who are more supply-side optimistic—or, I would say, "crazy".
I think the bill still has a 70% chance of passing. Certainly the stock market here in the United States appears to be fixing its odds at about a 70% chance of passing.
I, however, would like to step back and take a broader view. What is even crazier than Republican legislators believing this particular high-end tax cut will effectively pay for itself is the fact that we have arrived at this point at all. There are some 12 Democratic senators would gladly sign on to a corporate tax cut that broadened the base and lowered the rates. They would gladly sign on—provided they could be convinced that this was not just another shift in the income distribution from the non-rich toward the rich and that it would significantly strengthen the economy. And that test could be passed: I and many other economists not indentured to various Republican political masters see lots of opportunity to broaden the base, lower the rates, and strengthen the economy via real tax reform.
Yet, rather than take that path, McConnell and Ryan are moving forward with this Republican only thing that truly is down to the wire.
And as they get down to the wire, the potential benefits to the economy as a whole are evaporating. All that is left is a shift in the income distribution away from the non-rich to the rich. And even that is badly drafted: it is starting to look like incentives are going to be further disrupted and distorted so that there may not be growth benefits but rather growth harm to the economy as a whole.
The expensing provision—the provision by which companies get to deduct their investment expenditures from their tax base—expires. And it expires after five years. That means that McConnell and Ryan and Trump are trying to give corporations a big incentive to crowd a whole bunch of their investment spending in the five-year near future while that window is open. Then, after the window closes, they have an incentive to cut back on investment spending. That could well produce a small boom and then a small bust in the economy: stronger investment from 2018-2022, and then weaker investment starting in 2023. That go-stop is unproductive, and a good way to weaken the economy.
Republicans say that when the time comes around for expensing to expire, they will simply renew it. But that would require they maintain control of all three potential blockers—House, Senate, and Presidency. And if we have learned any lessons from ObamaCare and the Bush II tax cuts for the rich, it is that bills passed through Reconciliation along party-line votes are very unstable as policies.
Yet there are at least 12 Democrats in the senate in line to support corporate tax reform that would genuinely broaden the base, lower the rates, and provide a significant plus to the economy as a whole. Yes, such a deal would have gotten less money to the superrich who are now the key financial support base of the American economy—perhaps half as much money. But that money would be much more stable. And the chances of Republicans being able to run in 2020 on the basis of good economic stewardship would be noticeably higher.
As it is—the Joint Committee on Taxation's report is now out, and we are talking about real GDP growth over the next decade of only 0.08%. And that is for how much is produced in the United States. For how much flows in income to Americans, it is at best a zer, more likely a small negative as a bunch of the tax cut goes to foreign investors from day 1.
I am flummoxed.
At is not as though this issue appeared by surprise. It is not as though they had to put a critical proposal today in a month without any staff preparation on options, alternatives, benefits, and costs. They had years to prepare. Yet these idiots really do seem to have done their homework in the bus on the way to the school.
A recession? Probably not. There is a significant minus to GDP growth coming in five years from the expiration of expensing. There is the risk that each time you load on the national debt a little more you increase potential financial instability. That does add a little bit to recessionary dangers. But interest rates are still extremely low . Slower growth rather than any serious risk of a session follow from this.