Corporate Incentives And The Case For The Republican Tax Bill

RAY SUAREZ, HOST:

We're going to hear now from one of the tax bill's supporters, Douglas Holtz-Eakin. He was the director of the Congressional Budget Office under George W. Bush, and he's now the president of the conservative think tank American Action Forum. We spoke to him from our studios in Washington, and I asked if the critique from some economists - that this particular tax bill would make inequality worse and disproportionately benefit the highest-income taxpayers - was fair.

DOUGLAS HOLTZ-EAKIN: I think that misses one of the really important reasons to do tax reform. In 2016, those families that worked full time for the full year saw zero increase in their real income. We have a labor market that is employing people, but it's not delivering increases in the standard of living. So the most important thing that could happen would be to have the changes in business taxation - the incentives to invest in America and not abroad, the incentives to have intellectual property here and not abroad, have earnings that stay in the United States that don't get parked over in Ireland and, indeed, not lose the corporations and the headquarters of those corporations. So let's get a set of incentives that will have people invest in the U.S., innovate in the U.S., get some productivity growth in the U.S. and help the middle class.

SUAREZ: Do we have evidence to go on from previous rewrites or cuts that when corporations are able to keep more of their profits, they do those things you mentioned?

HOLTZ-EAKIN: Some of these things are unprecedented. The United States will, for the first time, move from a system where we tax our companies based on what they earn all over the globe to just what they earn in the United States. So if they earn money in Germany, Germany taxes it, but it doesn't get double taxed back in the U.S. Every other large developed country has done this but we haven't before.

SUAREZ: If there's wide agreement that the economy could use a boost from the tax code, but we're at 4.1 percent unemployment, share prices are at a record high, and corporations are already sitting on a mountain of cash, is this the medicine that's needed?

HOLTZ-EAKIN: The key medicine that's needed is something that generates real wage growth, higher standards of living driven by people's labor market efforts. We haven't seen that in recent years. It's been six, seven years since we've seen anything that looks like robust productivity growth, which historically has always been linked to the ability to have people live better.

So I'm focused on restarting the productivity growth engine in the United States. That's not a boost. That's not a stimulus. That's not a one-shot deal. That's change fundamental incentives to make sure that when you're going to have better technologies, that they're in the United States and our workers are using them; when there's going to be a new business model, it's in the United States and our workers are benefiting from it. That's the kind of incentives you want in the tax code.

SUAREZ: But if you look at the bulge in the bell curve, families in the $50,000, $60,000 range - they're not the big beneficiaries of this contemplated future set of tax brackets. And some of the cuts that do affect the most in the near term sunset in the 2020s.

HOLTZ-EAKIN: So I think those are part of the considerations that come up when you don't do the aggressive base broadening that I think the Congress could have done more of and instead run deficits because that means if you're going to have a deficit, you have to somehow find a way to sunset these things to meet the rules of the Senate in passing these bills. So they had to make a decision - do we sunset the individual provisions or do we sunset the business provisions? If you want to get large corporations to locate in the United States, expand in the United States and invest in the United States, you can't promise a couple of years of different tax treatment and then go back to the old way.

So they were stuck. They do the permanent business provisions and the individual one sunset. That's not an ideal outcome. That's part of the making of this particular piece of legislation. And I think the most important thing, as I said before, is not what the tax brackets are, the standard deductions or the child-care credits. Those will pale in comparison to having an economy that is closer to what we had after World War II, where the standard of living doubled every 35 years and further away from the economy we have right now, where it's anticipated to double every 75 years.

SUAREZ: Well, we'll have to have you back and see how it all comes out. Douglas Holtz-Eakin is president of the American Action Forum and former director of the CBO - the Congressional Budget Office. Good to talk to you.

HOLTZ-EAKIN: Thank you.

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