The University of Chicago’s Booth School of Business runs an ongoing survey of top economists spanning a wide number of specialties and political outlooks. The panel includes multiple Nobel Prize winners, White House veterans, and former presidents of the American Economic Association. Recently, they were asked about the Republican tax reform bills. The results weren’t encouraging.
The first question was straightforward. Would they agree that if the US passed a tax bill “similar to those currently moving through the House and Senate,” GDP would be “substantially higher a decade from now”? Of the 42 economists polled, only one thought the Republican bill would boost the economy. The plurality said it wouldn’t, and the remainder were uncertain or didn’t answer.
The survey includes an optional space for respondents to add a comment, and a few of the comments are notable. “Of course not,” wrote the University of Chicago’s Austan Goolsbee, who served as chief economist for President Obama. “Does anyone care about actual evidence anymore?”
A number of the economists argued that tax policy simply isn’t as powerful a lever as Republicans want to believe. “Tax policy appears to have little effect at the margin on GDP growth in OECD countries,” wrote MIT’s David Autor, an eminent trade economist. “Doubt it will substantially change things either way,” wrote the University of Chicago’s Anil Kashyap. “Aside from the redistribution of wealth, hard to see this changing much,” wrote Richard Thaler, who just won the Nobel Prize in economics.
The only economist to say the bill would increase GDP was Stanford’s Darrell Duffie, and he added the concern: “Whether the overall tax plan is distributionally fair is another matter.”
The second question asked whether passage of the Republican tax bills would mean “the US debt-to-GDP ratio will be substantially higher a decade from now than under the status quo.” Here, too, the news was grim from Republicans. In this case, all but one economist agreed that the bills would blow up the deficit, and the outlier, Stanford's Liran Einav, turned out to have misread the question — he later clarified that he also agrees the bill would add to the debt.
“How could it be otherwise?” asked MIT’s Daron Acemoglu. “Cut taxes. Lose money. Repeat,” said Goolsbee. “This is at least is clear,” said Yale’s William Nordhaus: “No way the growth effects will be strong enough to offset the revenue losses.” Even Darrell Duffie, the sole economist who agreed that the bill would boost GDP, says the plan will pile on debt.
So here, then, is the verdict of the economics profession. The growth benefits of the Republican tax plans are either nonexistent or uncertain. The increase in debt, by contrast, seems certain.
It doesn’t sound like a great trade.
Correction: I accidentally switched Darrel Duffie’s name for Robert Hall on second mention. It’s fixed now. While they are both Stanford economists, they are not in fact the same person.