When John McCain definitely withdrew support from the Graham-Cassidy health care bill on Friday, he most likely also extinguished any hope of Congressional tax reform before 2018. Or did he?
EconVue experts Michael Lewis and Robert Shapiro don’t agree on the future of tax reforms, but both have carefully reasoned arguments for their positions. Mike thinks that Congress will push through tax cuts this year, but Rob doesn’t think that there is enough support, and if they occur, they will be followed in short order by tax increases. To which Mike replies that President Trump doesn’t care about deficits. These sentiments are also held by Grover Norquist, president of Americans for Tax Reform, who foresees massive tax cuts when Congress returns from its recess on Monday.
Econvue experts Robert Madsen and Karim Pakravan then join in the conversation. Robert agrees that tax reforms are unlikely as the Trump Administration becomes distracted with other more pressing issues and says that time is running out. Karim weighs in on the negative effects if Republicans were to succeed. “A massive tax cut would make an already challenging fiscal situation unsustainable.”
Basically, there are two schools of thought about the possible value of increasing federal debt, either through tax cuts in an economy that is already burdened with debt whose carrying costs will likely rise in the near future, or increased governments spending. At Jackson Hole, a paper was presented to global central bankers who have grown weary of extreme monetary policy that argues that fiscal spending unsupported by additional revenues is either neutral or beneficial. However Ben Steil at the Council on Foreign Relations debunks what he calls the Paul Krugman school and says that there is no relationship between government spending and growth, citing the 2012-2016 data.
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