Dear Colleagues: You Responded, But We Have More Questions About Your Tax-Cut Analysis

Dear colleagues:

We appreciate that in response to our questions you clarified a number of points in your letter to Treasury Secretary Steven Mnuchin and, in particular, that you are backing off the statement in your original letter that “the gain in the long-run level of GDP would be just over 3%, or 0.3% per year for a decade.” As you state in your response to us, “We did not offer claims about the speed of adjustment to a long-run result.”

The only three studies you explicitly called out in your original letter do, however, provide specific estimates of the speed of adjustment that would imply that a 3 percent increase in long-run output would increase the annual growth rate by a 0.1 to 0.2 percentage point a year for the next decade — rates of growth that would not come close to paying for the cost of the proposed tax cut.

Even these growth rates, however, are likely to be too high. We have honest differences with you on how the economy operates, including how responsive behavior is to tax changes. But these are not the source of this debate. Instead, much of the difference here appears to be that you continue to miscite your sources while failing to consider the actual Tax Cut and Jobs Act rather than hypothetical theoretical proposals.