Trump's tax plan is built on a fairy tale - By Douglas Holtz-Eakin

By Douglas Holtz-Eakin April 26 at 5:57 PM

Douglas Holtz-Eakin is president of the American Action Forum and former director of the Congressional Budget Office from 2003 to 2005.

President Trump is correct to press for tax reform, correct to argue that corporate rates should be reduced and correct to look for policies that boost the United States’ anemic economic growth rate. But the “rough draft” of Trump’s tax plan, rolled out at the White House on Wednesday, falls short of being a real tax reform suitable to tax-cutting conservatives such as me.

Proposing trillions of dollars in tax cuts and then casually asserting that such a plan would “pay for itself with growth,” as Treasury Secretary Steven Mnuchin said, is detached from empirical reality. A real tax-reform plan would include specifics on how to broaden the tax base — not leave that hard work to Congress. A responsible tax plan would not ignore the threat of increasing a national debt that is already on an unsustainable course.

Accelerating the pace at which the federal budget bleeds red ink must be avoided, and building a tax plan based solely on the premise of future economic growth is dangerous. Sailing straight into a sovereign debt crisis is not a pro-growth strategy. What firm would want to headquarter in a country that is toying with financial meltdown accompanied by emergency austerity and tax hikes?

Of course, policymakers should factor economic growth into their tax-reform plans. Permanent, structural reforms — such as a territorial tax, neutral treatment of tangible and intangible capital, and others — could make it more desirable for companies to headquarter, innovate, invest and grow in the United States. This would be preferable to merely cutting tax rates in the existing failed system.

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