Supply-Side Vs. Supply-Side, Gary Cohn's White Lightning Tax Reform And The Three Easy Pieces

Gary Cohen

by Ralph Benko, Contributing Author:  The White House's National Economic Council Director, the fiscally brilliant Gary Cohn, is reportedly working on a 200-proof -- great -- version of a permanent rate-cutting, base-broadening tax reform. The White House is circulating a Joint Statement regarding the growing political consensus on tax reform:
Today, House Speaker Paul Ryan (R-WI), Senate Majority Leader Mitch McConnell (R-KY), Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch (R-UT), and House Ways and Means Committee Chairman Kevin Brady (R-TX) issued the following joint statement on tax reform:… We have always been in agreement that tax relief for American families should be at the heart of our plan. We also believe there should be a lower tax rate for small businesses so they can compete with larger ones, and lower rates for all American businesses so they can compete with foreign ones. The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas.Can we really get "a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas?" It's a compelling goal.

If anybody has the sure hand to fulfill President Trump's directive to lead us all the way out of the tax code briar patch it's Br'er Cohn, supported by House Ways and Means Chairman Br'er Brady & company. That said, it is also good that there's a Plan B.
Larry Kudlow and Steve Forbes, together with Steve Moore and Art Laffer, together founded a nonprofit group called The Committee To Unleash Prosperity.  Full disclosure, I serve as Editor-in-Chief of its website’s Supply Side Blog, a blog considered by some the definitive Web-based “bulletin board” for those devoted to full spectrum economic growth as something that deserves highest national priority on practical, political, and moral grounds.

Politico recently reported Kudlow paying a visit on the President. It, reportedly, was one of several of his recent trips to the White House.
“They know they could really use a win,” said Larry Kudlow, an informal economic adviser to the Trump campaign, who met with Trump last week. “The president, from the get-go, has been much more comfortable with tax cuts than health care.”That same Politico article that opened with Kudlow closes with a striking statement by Steve Forbes:Outside economic advisers, such as Steve Forbes, are pushing the president to pursue a package of simply cutting Americans' and businesses’ tax rates without overhauling the tax code itself. . . .

“The heck with the Congressional Budget Office, we’ve got to get something done,” Forbes told POLITICO. “Then, we could leave the heavy lifting for another day.” . . . Just what do the pride of the Supply-Side have in mind?  Steve Moore send this description of their Plan to few hundred thousand of his closest friends, myself included:The three easy pieces are:
1) business tax cut to 15 percent for corporations and small businesses.

2) repatriation to the U.S. of overseas funds at a 10 percent tax rate.

3) for families and individuals double the standard deduction.

This would be a straight tax CUT. It would be over 10 years. No revenue neutrality - which is a trap.

We calculate that this tax cut will raise the growth rate by almost a full percentage point - that is from 1.8 to 2.8 percent of GDP. Deregulation and energy policy changes can get us over 3 percent growth.

We are insisting that this tax cut get done before the end of the year. Let's face it, Trump needs a big victory and the economy needs a lift.  It's all teed up and ready to go, Congress just has to kick this chip shot through the goal posts
. . . As between Cohn and the outsider Supply-siders, let's heed Voltaire: don't let the perfect become the enemy of the good. Meanwhile let's applaud the fact that Cohn has, per the old British Royal Navy Friday toast, "sea room." Yet if the political challenges involved prove too heavy a political lift at this juncture it would be a great pity not to go for the “skinny” tax reform -- the Three Easy Pieces.

To which let me add that getting the matter of good monetary policy right is even more important for creating a climate of equitable prosperity and robust, "rising tide lifts all boats," economic growth than tax cuts. The case for the centrality of good monetary policy was at the heart of the famous "Mundell-Laffer Hypothesis" and proved central to the Reagan/Clinton era's excellent rising tide. This was discussed in depth in Kudlow and Domitrovic's cult classic JFK and the Reagan Revolution: A Secret History of American Prosperity, which I reviewed here.

"Good money" might even induce enough growth to eliminate the addition to the deficit projected by the proponents of the Three Easy Pieces. Good money is a really big deal. The importance of good money was recently highlighted in a Kemp Forum (I have professionally advised the Kemp Foundation from time to time), The Project on Exchange Rates and the Dollar, the essence of which was summarized in the Wall Street Journalmuch in evidence, the pride of the Supply-Side would do well to nudge the administration to pivot to monetary policy just as soon as Cohn's White Lightning tax plan, or Three Easy Pieces, are in place. Not incidentally, monetary policy is right in the sweet spot for, at least, Forbes, Kudlow and Laffer. Per Kudlow writing in The New York Sun:
Mr. Forbes’s version of “one big idea” is a flat tax and a sound dollar linked to gold. If we have that, we’ll be the “land of opportunity again.”

. . . To which Mr. Laffer added the great line: “Don't just stand there, undo something.” . . . . Cut taxes, stabilize the dollar, reduce tariffs, reduce regulation,” Mr. Laffer said….“Cut taxes, stabilize the dollar, reduce tariffs, reduce regulation.” It's a simple formula, one that has been repeatedly shown to work. If Cohn will heed President Trump's brilliantly intuitive appreciation of the classical gold standard, or if the pride of the Supply-Side indeed has and can keep President Trump's ear, the prospect of making America great again brightens.
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Ralph Benko is an advisor to nonprofit and advocacy organizations, is a member of the Conservative Action Project, a contributor to the contributor to the ARRA News Service. Founder of The Prosperity Caucus, he was a member of the Jack Kemp supply-side team, served in an unrelated area as a deputy general counsel in the Reagan White House. The article which first appeared in Forbes.

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