Economists Call for Pro-Growth Tax Cuts

It may be a very happy new year for taxpayers, as momentum is building on Capitol Hill for another round of tax cuts in early 2003.

The case for a new package of pro-growth tax relief was made by Dr. Daniel Mitchell, of the Heritage Foundation, and Dr. Wayne Brough, of Citizens for a Sound Economy. The economists met recently with Congressional legislative staff and the media for a CSE Policy Watch forum on Capitol Hill.

Dr. Mitchell focused on two elements of the current debate:

1. Keynesian ‘stimulus’ is bad economics. According to Dr. Mitchell, “Borrowing from private capital markets and providing rebates is simply shifting resources from one part of the economy to another. Even according to Keynesian theory, there’s no increase in spending power. We’ve got to increase GDP, not redistribute it, and that requires lower tax rates on productive behavior.”

2. Budget deficits that result from tax cuts don’t have a significant impact on interest rates. Dr. Mitchell said, “It’s ‘Rubinomics’ to suggest that budget surpluses equal lower interest rates. Look at the last two years, when the budget has swung from surplus to deficit. That’s a nearly $400 billion swing, yet interest rates have fallen. Simply stated, budget deficits do not have a measurable impact on interest rates. ”

Dr. Brough followed with two additional points:

1. Tax changes need to be permanent and should create long-term incentives to work and invest. “For example, one-time tax rebates aren’t very effective because they don’t change behavior at the margin,” said Dr. Brough. “If people save or pay down bills, which is generally what happens with temporary cuts, the rebates will have no stimulus effect because there is no boost in spending.”

2. Regulatory reform is pro-growth. Any kind of economic growth bill should look at excessive regulations, which hobble key sectors like telecommunications and energy. Dr. Brough explained, “Regulations are also a kind of tax on the economy, costing $700 billion a year.”

Both Dr. Mitchell and Dr. Brough are available for further comment.