Jason Furman has a slide deck posted in which he lays out his issues with the House tax reform bill. I agree with the vast majority of Furman’s points, save for his emphasis on reducing the debt. He makes a familiar point:

Macroeconomic effects of unpaid for tax cuts can become increasingly negative over time

Short run: Keynesian effect. Goldman Sachs estimated 0.1 to 0.2 percentage point higher growth in 2018-19. Higher growth limited by economy at/near full employment and Federal Reserve offsetting higher demand.

Long run: Deficits increasing drag. A wide range of macroeconomic models show that unpaid for tax cuts (or deferred financing) reduces economic growth, increases foreign borrowing, lowers wages, and raises the overall cost. 3. The House Bill Is Not Well Designed Modeling an earlier

The idea here is that although deficit financing can be good economic policy in a recession, since we are now at full employment, running a deficit is bad for the economy. I don’t think this is right in our current circumstances. I agree completely with the underlying macroeconomics. It’s about the political economy where Furman I differ. I think that it’s extremely difficult, in practice, to pass a timely and powerful fiscal stimulus. Monetary policy is a useful frontline, but near the zero lower bound it requires policies that the Fed, though better than other central banks, has been reluctant to employ. This leaves us in a dangerous position, should a recession strike soon. Interest rates are close to zero, and the Fed is just wrapping up its former extraordinary measures.

Thus I think it’s prudent for fiscal policy to give the Fed some running room. A fiscal stimulus now would allow the Fed to raise rates and normalize extraordinary measures faster. It would also give the Fed a better shot at finally hitting its two percent inflation target. That, in turn, would increase the Fed’s credibility.

In this environment, the major risks are of another cyclical shock that drives the U.S. economy into a lost decade. Moreover, I think Furman is right when he says that poor U.S. investment is well explained by an accelerator model. The economy has been below potential for over decade, and that has eaten into the incentive for capital investment.

All of this leads me to favor a corporate tax cut. Although, I would greatly prefer to see it better designed, what we are working with now is better than nothing.