When setting tax policy, don’t forget about long-run growth

Article Highlights

  • The American people should welcome the prospect of their elected representatives being asked to think further ahead than the next election.

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Neither party will always welcome estimates of how their proposals affect long-run growth. But the American people should welcome the prospect of their elected representatives being asked to think further ahead than the next election.

Last Friday, the House of Representatives took a sensible step to counteract the short-run focus that too often drives tax and budget policy decisions. The House voted 224-182 to pass H.R. 1874, the Pro-Growth Budgeting Act, which would require the Congressional Budget Office and the Joint Committee on Taxation to analyze the effects of major tax and budget bills on long-run economic growth.

Tax and budget policy can boost economic growth, particularly by cutting tax rates on labor and capital and reducing the deficit. Of course, the promotion of long-run growth can conflict with other goals, such as preserving tax progressivity and the safety net or providing short-run Keynesian demand stimulus. Resolving these tradeoffs sometimes requires hard choices.

Today, however, the deck is stacked against growth-oriented policy. Official budget estimates cover only a ten-year period and exclude any effects of tax and spending changes on the size of the overall economy. Although CBO and JCT have provided supplemental estimates of how a few tax and budget proposals affect the overall economy, even those estimates have been limited to a ten-year period.

Read the full article at The American.

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Alan D.
Viard

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