Economists respond to Summers, Furman over Mnuchin letter

By Robert J. Barro, Michael J. Boskin, John Cogan, Douglas Holtz-Eakin, Glenn Hubbard, Lawrence B. Lindsey, Harvey S. Rosen, George P. Shultz and John. B. Taylor

Treasury Secretary Steven Mnuchin (Carolyn Kaster/AP)

Dear Lawrence Summers and Jason Furman,

We read with interest your Dear Colleague letter in The Washington Post in response to ours in the Wall Street Journal.

You ask if we have considered several points you make. The answer is ‘yes’ — we have considered each before coming to our conclusion. Responses to each of your points follow:

First Point You Raised: Our letter addresses the impact of corporate tax reform on GDP; we did not offer claims about the speed of adjustment to a long-run result (though official revenue estimators will obviously need to do so for short-run analysis). We did not approach Marty Feldstein as a signatory, as he generally is not a ‘signer’ of letters, and he can certainly speak for himself. In fact, he did in Project Syndicate on November 27: “I dislike budget deficits, and I have long warned about their dangerous effects. Nonetheless, I believe the economic benefits resulting from corporate tax changes will outweigh the adverse effects of the increased debt…”

Second Point, Part (a) You Raised: The studies we cite all find that reductions in corporate taxation have important positive effects on economic growth. Ultimately, we are confident that the estimates in our piece are closer to the mark and are at the same time broadly consistent with other estimates from empirical studies of effects of corporate tax changes on growth.

Second Point, Part (b) You Raised: We refer to the estimate we believed most accurately reflects likely saving responses and thus capital accumulation.

Second Point, Part (c) You Raised: We state explicitly in the letter that the figure calculated on the basis of the OECD study is a long-run estimate (the OECD study estimates effects on GDP per capita, not GDP per se). We wanted …read more