Politics

How Will The GOP Tax Plan Affect the Economy?

First some full disclosure. I am a Republican free market economist. I believe in the importance of individual incentives and responsibilities. I believe in limited government where reasonable. I think the tax code should be as simple and transparent as possible. For over 10 years, I have advocated a revenue neutral rewriting and simplification of the tax code to encourage saving, investment, and entrepreneurship and to reward hard work

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Changing the tax code is a huge undertaking. In personal terms, you can think of it as building a complicated house. It can only be done every few decades. The Republican party had a chance to deliver something of great value to the country. With careful planning and forethought it could build a “dream house.” What they did was throw up a hastily built shack. It is as complicated as what it replaces. It is not revenue neutral. It tends to favor corporate interests. It is not supported by a majority of the American populace.

My advice? Tear it up and start again. America does not need a shack, it needs the dream house. I also see the current bill as a great threat to Republican politicians. As all the leaks in the roof become apparent, the drafters will get blamed. And when the fiscal house finally falls down, Republicans will be sent packing.
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Two of America’s top economists appeared on ABC’s This Week to debate the potential impact of the GOP tax plan. Liberal economist Paul Krugman, a Nobel Prize winner, and conservative Glenn Hubbard, a top official in the George W. Bush administration, have differing views on how the tax overhaul will affect the economy.

“I have been looking–what do the markets think? Never mind the stock market. If you’re going to cut taxes on corporations, you would expect the stocks to go up. A better judge would be, look at the dollar. If this bill does what they say it’s going to do, scads of money pour in. Corporations will bring money back home, invest it here. All of that should lead to a surge in the dollar,” explained Krugman. “In fact, the dollar has done nothing. The dollar rose when Trump was elected because people thought the infrastructure plan was going to happen. Then it went back down again. It’s actually lower than it was on Election Day. What the markets are saying is, this is a big nothing burger. The markets are saying they don’t expect any significant economic boost.”

Hubbard, asked what impact the plan might have when the economy is already doing well, disagreed with Krugman’s assessment. “I think it will do two big things. One, in the short run, it will provide some boost to demand. I think the Fed would probably look forward to that. In the longer run, the issue is on the supply side. The tax bill could probably raise GDP by about 3 percent in the long run. That’s not the beginning of a new era, but it is certainly very, very positive for the economy. Economists have long campaigned on tax reform as the biggest single policy weapon.”

Watch the full discussion below.

Two of America’s top economists appeared on ABC’s This Week to debate the potential impact of the GOP tax plan. Liberal economist Paul Krugman, a Nobel Prize winner, and conservative Glenn Hubbard, a top official in the George W. Bush administration, have differing views on how the tax overhaul will affect the economy.

“I have been looking–what do the markets think? Never mind the stock market. If you’re going to cut taxes on corporations, you would expect the stocks to go up. A better judge would be, look at the dollar. If this bill does what they say it’s going to do, scads of money pour in. Corporations will bring money back home, invest it here. All of that should lead to a surge in the dollar,” explained Krugman. “In fact, the dollar has done nothing. The dollar rose when Trump was elected because people thought the infrastructure plan was going to happen. Then it went back down again. It’s actually lower than it was on Election Day. What the markets are saying is, this is a big nothing burger. The markets are saying they don’t expect any significant economic boost.”

Hubbard, asked what impact the plan might have when the economy is already doing well, disagreed with Krugman’s assessment. “I think it will do two big things. One, in the short run, it will provide some boost to demand. I think the Fed would probably look forward to that. In the longer run, the issue is on the supply side. The tax bill could probably raise GDP by about 3 percent in the long run. That’s not the beginning of a new era, but it is certainly very, very positive for the economy. Economists have long campaigned on tax reform as the biggest single policy weapon.”

Watch the full discussion below.

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