Tax reform: Will election-year noise squelch a serious bid to create jobs?

Rep. Dave Camp's proposal on tax reform, seen as irrelevant in election-year Washington, would add 500,000 jobs a year to the US economy, a former CBO director says.

J. Scott Applewhite/AP
House Ways and Means Committee Chairman Rep. Dave Camp, R-Mich., the House tax writer, leaves the podium after a news conference on Capitol Hill in Washington, Wednesday, where he outlined a major plan to rewrite the nation’s tax code.

Tax reform: Will election-year noise squelch a serious bid to create jobs?

A former CBO director said Friday that the tax reform proposal put forward by Rep. Dave Camp, seen as irrelevant in election-year Washington, would add 500,000 jobs a year to the US economy.

A serious proposal was released in Washington this week to achieve a long-sought goal, and was promptly dismissed as irrelevant: The chair of a key House committee released a plan to overhaul the US tax code in ways designed to boost economic growth and create what Americans say they want most. Jobs.

The plan includes ideas from Democrats as well as from the Republican Party that’s home to its author, Rep. Dave Camp of Michigan.

On Friday, a former director of the Congressional Budget Office (CBO) estimated that the Camp plan, if enacted, would add about 500,000 jobs per year to the economy. The economist, Douglas Holtz-Eakin, now at the conservative American Action Forum, sees those job gains diminishing over time, however, once the plan is enacted.

The staff of the House-Senate Joint Committee on Taxation, also says the plan would add jobs, although it didn’t put such a specific number on it. Both studies see the economy growing modestly faster under the reform.

Yet, because it’s an election year and because it’s so hard for lawmakers to agree on complicated and sensitive issues like tax reform, the Camp plan has generally been brushed aside as something destined not to pass.

Representative Camp doesn’t argue that his plan is perfect, but it’s a conversation-starter at the very least. For years, policy experts on the political left as well as the right have viewed simplifying the tax code as among a handful of off-the-shelf ideas that Congress could implement that would benefit job creation.

By laying out a detailed plan for discussion, Representative Camp is underscoring the possibility of a potential win-win situation: Overhauling the tax code is something that, if done well, could boost economic growth without depriving the government of tax revenue or adding to the national debt, and lawmakers from both parties might even see their abysmal job-approval ratings rise in the process.

“We could hardly have a worse tax code....  Let’s make it better," Alice Rivlin, a former budget director for President Clinton, said at a conference of economists in Washington this week.

In public opinion polls, Americans have been pretty consistent since the recession in saying that the “economy” is their top issue of concern (sometimes it’s the “economy” and “jobs” combined together). Surveys have also found a majority of Americans would prefer that the two political parties strike compromises to get things done.

Admittedly, all signs of political climatology suggest that tax reform won’t happen this year. The deal-cutting involved appears to be too heavy a lift amid the election-year race by both sides for political advantage.

But it’s still important to talk about the consequences of delay. As economists see it, every year that passes without tax reform is a year of somewhat slower economic growth, or higher federal deficits, or both.

“We can’t afford to wait until next year” for steps like tax reform that could boost growth, Rep. Kevin Brady (R) of Texas said in an interview this week, after giving a speech this week about the gap between America’s economic potential and current reality.

“Hope springs eternal that we can find some common ground,” he said, while also voicing frustration that Congress is getting so little done on economic policy.

Tax-code reform isn’t the only idea where some members of both parties see the potential for legislation that could quicken economic growth. Among others potential steps would be to pursue new free-trade treaties, to use immigration reform in part as a lever for attracting innovative talent to the US, and to seek bipartisan ways to lighten regulatory burdens on business.

In a 2013 survey of about 200 business economists, nearly all saw tax reform as something Congress should do.

Many of the economists, with an eye on the large future costs of entitlement programs like Medicare, favored reform plans that would add at least some new tax revenue. A minority favored revenue-neutral reform, aiming more directly at moving the economy’s growth needle.

Camp has framed his plan as revenue-neutral, while many Democrats favor boosting revenues.

Either way, the economy could benefit, since the CBO has warned that high national debt (caused by the persistent mismatch of spending and revenues) threatens to slow economic growth.

To some degree, members of both parties have embraced a general thesis held by economists: that lower tax rates, paid for by paring back the tax code’s thicket of deductions and loopholes, would allow faster growth.

While the Camp plan has many details (sketched here), its central goal is to advance that general approach.

The Joint Committee on Taxation analysis says lowering tax rates promises to boost the economy both on the “supply” side (more people finding it worth their while to work) and on the “demand” side, as consumers are left with more income to spend.

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