Unfortunately, the tax-reform effort currently underway in the US is not backed by a group of bipartisan centrists, but by right-wing Republicans who believe that taxes are an affront to billionaires’ liberties. Rather than starting from the center and making appeals to both sides, congressional Republicans are starting from the right and feinting toward the center. At the end of the day, cutting taxes for the wealthy is their top priority, regardless of whether such cuts lead to more domestic investment.
Feldstein’s language in describing the current Republican tax-reform effort is telling. “The House Republican plan would cut the top tax rate back to 30% or lower,” he writes, before listing a few “mights”: the bill “might…eliminate the estate tax”; and it “might eliminate tax deductions for state and local taxes, and tax some of the fringe benefits that are currently excluded from taxable income.” Further down, he claims that the bill “would reduce [the corporate-tax] rate to 25% or less,” which, he asserts, is “likely to boost domestic corporate investment.”
But whether the Republican plan “would” do something depends largely on those “mights.” The bill might yield a net benefit for all or most Americans, or it might be a handout to the super-wealthy. Given that the effort is being led by hard-right Republicans who care more about cutting taxes than holding down deficits, my bet is on the latter outcome – the one Feldstein warned about in the early 1980s.
J. Bradford DeLong is professor of economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was deputy assistant U.S. Treasury secretary during the Clinton administration, where he was heavily involved in budget and trade negotiations.