How Effective Will the New Tax Law be?


The new tax law that took effect at the beginning of the year has been scrutinized and found wanting by a pair of Harvard economists — one a Democrat, the other a Republican. They say it will undoubtedly spur economic growth at a moderate level but not nearly enough to produce the revenue that is being lost at the same time.


Too many tax cuts, the experts say. Not enough new revenue sources. Over the next decade the United States Treasury will lose over a trillion dollars from the new tax law according to an academic paper just released by co-authors and economists Jason Furman, who advised President Obama on economics, and Robert Barro, a deep conservative.


Provisions in the tax law should boot the country’s gross domestic product to a total of four tenths of a percent in the next ten years. But this gradual growth, although predicted to continue past the ten year mark, is still not enough to offset declining tax revenue from the whittled down corporate tax rates now in effect. Even the generous business equipment capital investment deduction rate will eventually provide less and less trickle down income to others that can then be taxed, according to the two authors.


Both Furman and Barro conclude that unless tax reform is done from the bottom up, from counties to states to the federal government, it does little to alleviate major tax inequalities.