The cheerfulness of tax reform; and, Is Adding 300,000 Jobs Unusual?

by George Will,

“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

— Mr. Micawber in David Copperfield.

If America’s long-term economic growth were 3.5 percent, the result would be the restoration of cheerfulness. If long-term growth is closer to 2 percent, the result will be continuing social disappointment and political crankiness.

Rep. Dave Camp (R-Mich.), as chairman of the House Ways and Means Committee, did his considerable best to deliver the indispensable igniter of sustained growth — tax reform. As he leaves Congress after 12 terms, passing the gavel to an equally able reformer, Paul Ryan, Camp remains confident that it can be done. Such serenity is strange in today’s Washington, where even events that cause cheerfulness are for that reason depressing.

The euphoria occasioned by the economy adding 321,000 jobs in November indicates that we have defined success down. In the 1960s, there were nine months in which more than 300,000 jobs were added, the last being June 1969, when there were about 117 million fewer Americans than there are now . In the 1980s, job growth exceeded 300,000 in 23 months, the last being November 1988, when there were about 75 million fewer Americans than today .

To demonstrate how young people “are not getting the kind of start others got,” Camp offers a graph charting the “fraction of young adults living with older family members.” Beginning in the middle of the last decade, the line goes almost straight up, to almost 46 percent.

There is consensus about the broad contours of tax reform: Lowering rates and recouping lost revenue by closing loopholes, and by improved economic growth, justify “dynamic scoring.” This means estimating the revenue and growth effects of tax changes that improve incentives to work, invest and consume. And save: The median savings of households 10 years from retirement is a paltry $12,000; nearly one-third of those 55 to 64 have no savings.

Consensus abruptly ends when dealing with details.

Charitable giving, too, is highly correlated with economic growth. Were the deductibility of charitable contributions limited in a context of improved economic growth , charitable giving would increase: People give more when they are prospering. Such giving surged after Ronald Reagan reduced the top tax rate from 50 percent to 28 percent in 1986. Although this rate reduction also lowered the value of the charitable deduction, it ignited growth, hence cheerfulness, hence largess.

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