This week on Facing the Future we focused on the economy and previewed the 2025 tax debate when key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) are scheduled to expire at the end of the year. We also discussed some new tax proposals that have been floated on the campaign trail.
Our guest was Douglas Holtz-Eakin, President of the American Action Forum and former Director of the Congressional Budget Office (CBO). Concord Coalition chief economist Steve Robinson joined the conversation.
On the economy, Holtz-Eakin said, “The baseline forecast is pretty good, but as the old saying goes ‘all hard landings begin as soft landings.’ Hopefully, if the Fed moves in an expeditious fashion, we will get the soft landing. But I do think there remains a downside risk here that they will have stayed elevated just a tad too long and we’ll see a dip into negative territory. Once you start growing slowly, start getting in the growth of half a percent to a percent, bad things happen all the time. It gets easy to get knocked into negative territory. And so I’m still a little cautious about getting through the year without running into trouble.”
Regarding the 2017 tax cuts, Holtz-Eakin observed that, “people should raise the corporate rate in particular, and mess with the corporate provisions in general at their own risk. I think those have been extraordinarily successful.”
He said, however, that the extension of expiring provisions “should be deficit neutral relative to current laws. Pretend that they sunset and do it deficit-neutral from there because we have big fiscal problems. That’s hard work and I don’t genuinely believe, as we sit here today, that Congress has the appetite to do that. But that’s what the benchmark should be.”
“We know what the trade has been in recent years,” he said. “We’ll take our tax cuts. You guys get your spending increases, we’ll make them both permanent. That can’t be the future from a deficit management point of view. We’re going to have to offset some of this stuff. We’re going to have some other base broadeners that raise more revenue or we’re going to bring in Medicaid; we’re going to bring in other mandatory spending somewhere, I hope. That would make sense. Get it as deficit-neutral as possible.”
Holtz-Eakin is not impressed with what he has seen so far on the fiscal proposals of Vice president Harris and former President Trump. “There is no coherent vision for growth coming out of these candidacies,” he said.
President Trump, for example, has proposed substantial tariffs. “If you put them in historical context,” Holtz-Eakin said, “they are of the magnitude of the Smoot-Hawley tariffs that got so much attention around the Great Depression. So this is not an inconsequential one-off tariff, like some of the things he did with China and others. This is just an enormous shock to the world economy. People, especially those heavily exposed to trade with us would be deeply impacted by it, and so that ranges from Canada and Mexico who, by the way, we have a free trade agreement with.”
Vice President Harris has proposed various Federal government subsidies to make housing more affordable. “As a general matter,” Holtz-Eakin said, “the only solution to high prices is more supply, and the only thing that generates more supply is high prices.
So high prices tend to solve themselves. The question is, do they do it on a timetable that is palatable for consumers. or especially for politicians who want to get elected?
Yes, there are some real issues with the price of housing. They can be solved by the pressures that will come from needing more housing, but they won’t get solved quickly. Unfortunately, the reflex of most politicians is to give people more money, so those prices don’t seem so high. ‘We’ll just subsidize your consumption of housing,’ but that just subsidizes demand for housing and causes more demand for housing, and it makes the problem worse, not better. So it’s a real tough issue right now, but I don’t see an easy solution that will happen quickly, and anything you hear them saying that suggests that they’ve got that probably isn’t going to stand up to scrutiny.”
We ended with a discussion of the American Action Forum’s debt stabilization plan presented in July as part of the Peter G. Peterson Foundation’s Solutions Initiative.
“The strategy is pretty simple,” Holtz-Eakin explained. “You want to have fiscal consolidation which has to mean taxes go up, spending goes down, deficits get smaller, and debt gets stabilized in our case relative to GDP. Try to get that stabilized and then my goal is to have it start going south. We entered the 21st century, about 30 percent debt to GDP. I’d be very happy to get it back there. I think that would be fairer to the future, but certainly to take fears of a crisis off the table. So that was our goal. But you want to do that in a pro growth fashion.
Hear more on Facing the Future. Concord Coalition Executive Director Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
