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Chad Stone Testifies on Why Tax Reform is Not an Effective Tool for Speeding Up the Economic Recovery

I testified before the Congressional Joint Economic Committee (JEC) at a hearing today examining how tax reform could help boost business investment and job creation. Here are the highlights:

My reading of the economic evidence is that tax reform is unlikely to be an effective tool for speeding up economic growth in the short run.  Tax reform could be a useful tool for enhancing growth in the longer run, but only in the context of a sound overall program for achieving long-term fiscal stabilization and not if it is used as an excuse to avoid the revenue increases that must necessarily be a part of any credible, sustainable deficit-reduction plan…

[T]he major factor holding back investment and job creation in the current economy is weak sales due to inadequate aggregate demand and slow economic growth.  Policies that increase aggregate demand are the best short-term policies for creating a more favorable environment for investment and job creation, and tax reform policies typically operate on the supply side of the equation.  Measures like those in the President’s American Jobs Act are likely to be much more effective at boosting aggregate demand and closing the jobs deficit — without adding to the long-term budget deficit, because they are temporary…

[I]n the longer run…it makes sense to embrace an enduring principle of tax reform — that a broader tax base allows rates to be lower than a narrower tax base, but we also have to ensure we have enough revenue to pay for the things we want government to do — ranging from national defense to an adequate safety net.

You can read the full testimony here.

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