Lawrence Summers: What I do Support in a New Tax Plan

I have been very sharply critical of what I regard as unprofessional exaggeration by advocates of the Trump tax proposal. Reasonably enough, people have asked what I am for.

I strongly support tax reform in general and especially corporate tax reform on the model of the highly successful bipartisan 1986 tax reform, which achieved very large rate reductions, spurred economic growth and improved the efficiency of the economy while being revenue- and distribution-neutral.

Although one could imagine all sorts of radical Blue Sky tax reforms — or much less radical ideas such as a carbon tax or a value-added tax — in the context of the current debate about how to make some alterations to the current tax system, I would suggest the following five elements in the spirit of 1986:

1. Reduce rates but not revenue. A core principle in 1986 was that rate cuts had to be financed by base broadening, such as mortgage and health deductions and scaling back unwarranted business write-offs.  This ensured that the beneficial effects of rate cuts were not offset by the risks of larger deficits. I have been a major proponent of deficits and fiscal expansion to spur recovery, but now, when unemployment may fall below 4 percent and the Federal Reserve is tightening, is not the time to expand the long-run deficit.  Larger budget deficits would mean larger trade deficits, with the attendant costs, and less space for government to respond to the next recession.