Senator Susan Collins speaking on “Meet the Press” defended her vote on the Senate GOP tax bill based on the claims of the signatories to the nine economists’ letter that we have criticized over the last week. The Maine Republican explained: “If you take the CBO’s formula and apply it, just four-tenths of one percent increase in the GDP generates revenues of a trillion dollars. … So I think if we can stimulate the economy, create more jobs, that does generate more revenue.”
This is essentially a claim that the tax bill will pay for itself. The NBC show’s host, Chuck Todd, pointed to three contrary studies— here, here and here (none of which come from left-leaning institutions) — that found that that tax cuts fall far short of paying for themselves. He then challenged Collins to produce a study suggesting that tax cuts do not create larger deficit. The senator responded, “Well, talk to economists like Glenn Hubbard and Larry Lindsey and Douglas Holtz-Eakin, who used to be head of CBO, and they will tell you otherwise.”
In light of Collins’s statements and her central role in the tax policy debate, we believe it is very important for public understanding that Holtz-Eakin, Hubbard and Lindsey make their views on tax cuts paying for themselves clear. If they believe as we do, as all the members of a nonpartisan panel of distinguished economists assembled by the University of Chicago, as Holtz-Eakin asserted earlier this year, and Hubbard asserted some time ago, that tax cuts do not come close to paying for themselves, this seems essential to clarify.
In fact, we believe it would be useful for any of them to clarify that the Republican-appointed Joint Committee on Taxation’s (JCT) modeling is nonpartisan, expert and superior to more partial and partisan analyses. Moreover, we would note that the JCT’s estimate of less than a 0.08 percentage point additional annual growth rate increase is not inconsistent with the long-run output increases the authors claimed in their letter to Treasury Secretary Steven Mnuchin, as they clarified in their response to us.
Alternatively if Holtz-Eakin, Hubbard and Lindsey now believe that tax cuts will pay for themselves, we think it appropriate for them to provide a basis for this belief in light of the many issues we have raised about their letter to Mnuchin.
By Lawrence H. Summers & Jason Furman