By Alan Murray and Geoffrey Smith
December 12, 2017

Good morning,

Regular readers of this newsletter know I am sympathetic to the GOP tax bill, because it makes needed fixes to the corporate tax system. But there is little good to say about the long-awaited “analysis” of that plan issued yesterday by the Treasury Department.

The analysis said the tax cuts would more than pay for themselves. Sort of. Actually, it said that if annual GDP growth increased to 2.9% a year, up from current projections of 2.2%, that would bring in enough revenue to cover the cost of the tax bill. And while the tax plan alone might not create that much growth, an additional boost “from a combination of regulatory reform, infrastructure development and welfare reform as proposed in the administration’s fiscal year 2018 budget” would make up the difference.

The full report was less than 500 words—the equivalent of, say, four tweets. Having spent a portion of my earlier career reading papers from the Office of Tax Policy (see: Showdown at Gucci Gulch), I can say I’ve never seen one quite as flimsy as this. The once-credible Treasury economics shop seems to have adopted President Trump’s flexible approach to reality. No need to be troubled with numbers or facts. Just create your own.

There are other clouds on the horizon for this tax proposal too. The finance ministers of Europe’s five largest economies warned yesterday that some of its provisions may violate existing international tax treaties (the city of London is particularly concerned about the treatment of intra-bank transfers between the U.S. and Europe). China is also planning possible retaliatory measures, according to the WSJ.

Estimating the effects of tax bills on the economy, of course, is an uncertain art. But it’s a necessary one. The congressional Joint Committee on Taxation made a good faith effort, and concluded the bill would add $1 trillion to the deficit, even after an expected boost to the economy. I’d take that as more realistic. If you care about the nation’s future, it’s probably also an argument for Congress to compromise on a corporate tax rate closer to 25%.

News below.

Alan Murray


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