Event Recap: The Challenge of Pro-Growth Tax Reform
Today, the third forum of the "Strengthening of America—Our Children's Future" series was held in New York City on "The Challenges of Pro-Growth Tax Reform." Commenting on taxes as well as our unsustainable debt path were two panels; the first featuring notable economists Martin Feldstein and Lawrence Summers, while the second made up of business leaders—Honeywell CEO and Fiscal Commission member David Cote, CEO of SEI and Chairman of the American Business Conference Alfred West, and COO of Qwiki Navin Thukkaram. The takeaway? Tax reform may be politically difficult, but there would be economic payoffs for doing so.
On the first panel, both economists saw our fiscal outlook as unsustainable. Feldstein noted that the low interest rates that we are seeing today will not be permanent with both the Federal Reserve and foreign countries like China are buying much of our debt, the latter of which declared in its recent 5-year plan that it will look to boost domestic consumption (leading China to purchase less U.S.. Treasuries). "We don't know how long the financial markets will be tolerant of our enormous deficits and debt." Feldstein said. Summers agreed, clarifying that while it is difficult to know when a fiscal crisis could happen, "every day we delay is a day we increase the risk." The way to think of borrowing, Summers said, was not as financing government but as delaying the tax burden that we would inevitably face to future generations.
But they both saw tax reform as an opportunity. Feldstein said that broadening the base and lowering marginal tax rates would "have a direct effect on growth." Summers agreed that tax expenditures needed to be reduced, calling them "entitlements" that often help the most wealthy taxpayers. Tax reform would be best done as part of a comprehensive plan that addressed entitlements and the deficit in a thoughtful way. While the two may differ on some of the details, it seemed that both agreed with the tax reform principles behind bipartisan plans like Domenici-Rivlin and Simpson-Bowles and the need for fiscal responsibility.
The business leaders on the panel also recognized the need for addressing our deficit. For Cote, the combination of both rising debt and the fiscal cliff were a concern, with the fiscal cliff likely to have an even larger effect on the markets than last August's debt ceiling debate. "If the debt ceiling was like playing with fire, the fiscal cliff is like playing with nitroglycerin." West and Thukkaram agreed, both noting that businesses can create growth but they need the confidence in a stable tax environment. Cote said he "loved the concept of Simpson-Bowles," as shown by his vote for the plan, and its approach to tax reform of eliminating tax expenditures and lowering rates.
For Cote, the next important step is to convince lawmakers the price of doing nothing is far greater than the price of doing something, and the support behind the Campaign to Fix the Debt, of which he is a steering committee member, may make that a reality. Whether you are a CEO, a small business owner, or even an average American worker, we could all benefit from getting our deficits under control and finding ways to make our tax code more efficient. Sign the Fix the Debt petition and tell Congress that inaction is not an option.
The event was the third of a four "Strengthening of America–Our Children's Future" forums of former senators and representatives that are seeking to raise awareness of our growing and unsustainable debt. You can read summaries of the first event here and the second event here. More information on the forum can be found here.
