George Will began a Washington Post column on tax reform by bemoaning the fact that we have defined success downward. He notes the celebration over the 321,000 job gain reported for November, then tells readers:
"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 ."
While Will is right about the low bar for success (we should be seeing very rapid job growth following a steep downturn like the 2008-2009 recession), the sixties do not support his case for a need to cut tax rates. Through most of the 1960s the top individual tax rate was 70 percent, while the corporate rate was 50 percent. That compares to a top individual rate of 41 percent today, and a corporate tax rate of 35 percent. The top marginal tax rate in the first two months when we had 300k plus job gains was 90 percent. If Will wants to make the case for lower tax rates spurring job growth, he should not be citing the sixties.
Will then goes on to complain that one third of the people approaching retirement have no savings. This is indeed a serious problem, but it is hard to see it being cured by tax reform. Most of these people would have been in the zero, ten, or fifteen percent bracket for most of their working lives. Furthermore, they would have had the opportunity to put as much money as they plausibly would have been able into a tax deferred 401(k). It is very difficult to envision a tax reform that will enable these people to qualitatively increase their savings. Their main problem is not enough income, with close to four decades of stagnant wages.
Will also says the real estate industry really should support tax reform even if it caps the exemption for the mortgage interest deduction, because faster economic growth will lead to higher home prices. Both parts of this are wrong. Douglas Holtz-Eakin, who had been President George W. Bush's chief economist, examined all the standard macroeconomic models for the impact of large tax cuts on growth when he was head of the Congressional Budget Office. He found that even the most extreme assumptions implied that large tax cuts had only a modest effect on growth.
Furthermore, economic growth is not associated with higher house prices. House prices only kept pace with inflation during the years of rapid growth in the 1950s and 1960s.