Paul Ryan’s ‘Anxiety’ Cure
Americans may be feeling better already.
President Donald Trump delivers remarks about things other than tax reform at Trump Tower on August 15. Photo: Drew Angerer/Getty Images
Do we dare to hope that politicians may now be turning their attention to encouraging prosperity for all Americans? For any readers who have found it stressful observing the issues that have lately dominated political discourse, there may be a treatment. Joseph Lawler of the Washington Examiner reports from Everett, Washington:
House Speaker Paul Ryan toured businesses in the Pacific Northwest this week to deliver the message that Republicans can produce a historic revision of the tax code…
Tax reform was always planned for the fall, and for Ryan, getting something done here is a chance to deliver a much-needed win for the GOP.
“I’ve been focused on this literally my adult life. But now, more than ever,” Ryan said, a major overhaul of the tax code could “help reduce that anxiety” that the country feels over politics.
Anxiety reduction would be most welcome. Wall Street seems to have gotten over its own minor case of anxiety on the news that President Trump’s economic adviser Gary Cohn will be sticking around the White House for a while. Some investors have been fretting that markets would decline if Mr. Cohn chooses to leave, on the theory that the former Goldman Sachs executive is critical to the effort to cut taxes.
This column is glad Mr. Cohn is around to encourage free trade, but has been skeptical of the analysis that he’s the key to tax cuts. This skepticism is based on the fact that Mr. Cohn wasn’t much of a cheerleader for tax relief before entering the White House and didn’t seem to have his heart in it once he arrived.
But Mr. Cohn’s new interview with the Financial Times may serve as a useful therapy for any Americans suffering from generalized economic anxiety disorder. The British business publication asked, “Will you offer any concessions to get some Democrats on board?”
Here’s Mr. Cohn’s response, according to an edited transcript:
If the Democrats want to work with us on a bipartisan tax bill we are excited to have them on board. But if not we will just do reconciliation. The important issue we need to talk about is why are we so compelled to do taxes . . . that is what the president is going to be out selling.
If you look at US GDP since 2008 we have been averaging less than 1.5 per cent GDP growth [including the recession]. Before that, we had much higher growth. We don’t think that a 2 per cent growth economy is good enough — we need to raise that.
It’s reassuring to know that Mr. Cohn is not satisfied with the Obama-era new normal of slow growth. Even more encouraging is that, unprompted by the Financial Times, he then explained why it’s so important for the United States to cut corporate income tax rates.
Many leftists argue that since tax rates aren’t as high as they were when President Ronald Reagan took office in 1981, there’s less need to enact a Reagan-style tax cut to boost growth now as he did then. But Mr. Cohn provides the important context, which is that the world’s other advanced countries have been busy cutting their own rates. As Mr. Cohn explains, the world has simply become a more competitive place, including in the 34 other member countries that, along with the U.S., belong to the Organization for Economic Cooperation and Development:
If you go back to the early 1980s and look at OECD and US tax rates, they were pretty similar then. But then most OECD rates went down, down, down. The US had one big drop in 1986 but we then flatlined… So we used to have a competitive advantage, but since then we have continued to be less and less competitive. Today we are 14.4 percentage points more expensive on tax rate than the rest of the OECD — we used to have a 5.7 percentage point advantage.
According to KPMG, the overall state and federal corporate income tax burden in the U.S. is even worse on a relative basis—closer to 16 percentage points above the OECD average. But Mr. Cohn is right on target in adding, “We have just gotten uncompetitive.” He also suggests that the trade deficit that is a fixation of some economic nationalists is in part just an artifact of bad tax policy:
If you are a company which manufactures in Europe and sells in the US and European tax is 10 percentage points lower in Europe than in the US then what you want is for as much profit as possible to show up in Europe. So you sell your product to the US subsidiary at the highest possible price and what does that do to the trade deficit?
The Trump adviser also said that the President will begin making his case with a speech in Missouri. According to the Financial Times:
“Starting next week, the president’s agenda and calendar is going to revolve around tax reform,” Mr Cohn said in an interview. “He will start being on the road making major addresses justifying the reasoning for tax reform and why we need it in the US.”
A leadership team in Washington focused on economic growth is making this column feel better already.