The 2017 Tax Law: A Boost to Growth or a Missed Opportunity?

16 Pages Posted: 20 Dec 2018

See all articles by Jason Furman

Jason Furman

Harvard Kennedy School; Peterson Institute for International Economics

Date Written: December 19, 2018

Abstract

This paper summarizes and extends the analysis in Barro and Furman (2018) of the 2017 tax law, which dramatically reduced the corporate income tax rate. Barro and Furman find that the tax law as written would increase the annual growth rate of gross domestic product over the next decade by 0.02 to 0.04 percentage points. Extending these results, the effect of the tax law on national income would likely be even smaller, or perhaps negative, due to increased payments to foreigners needed to finance the larger budget deficit and increased investment and due to increased capital depreciation. It concludes with a proposal for genuine tax reform by expanding and making expensing permanent, disallowing interest deductions and raising rates that would increase economic growth by substantially more than making the current system permanent. Such reform also would make the tax code more stable, simpler and more efficient.

Suggested Citation

Furman, Jason, The 2017 Tax Law: A Boost to Growth or a Missed Opportunity? (December 19, 2018). Capitalism and Society: Vol. 13: Iss. 2, Article 2. Available at SSRN: https://ssrn.com/abstract=3304175

Jason Furman (Contact Author)

Harvard Kennedy School ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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