Investing in Tax Reform Today will Yield a Strong Economy Tomorrow

Alex Brill | The Hill

With tax reform hopefully next on the GOP’s agenda, it is important for lawmakers to think about its revenue effects in a sensible way: focus on the long-run budget impact, not the 10-year horizon embedded in congressional rules.

The budgetary “score” of a tax reform bill is the revenue gained from reducing tax breaks minus the revenue forgone from lowering tax rates. Done right, faster economic growth will be the byproduct and the score of a tax reform bill should be adjusted to reflect any macroeconomic impact. For example, pro-growth tax reform will yield additional revenue as the economy expands and the tax base grows.

Recent Republican tax reform proposals have anchored on revenue neutrality. That’s a sensible approach, but revenue neutrality should be defined on a long-run basis, not a proposal’s deficit impact over a 10-year window, as the rules governing the Congressional budgetary process dictate. There are five primary reasons the 10-year budget window is a hindrance to sound fiscal policy in the context of tax reform.

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