Larry Kudlow, the veteran financial guru and former economic adviser to President Ronald Reagan, said business tax cuts will lead to federal budget deficits that will be overcome in a few years.
President Donald Trump on Wednesday will announce his tax reform proposals, which will include a cut in the corporate tax rate from 35 percent to 15 percent. U.S. Treasury Secretary Steve Mnuchin said the plan “is going to be the biggest tax cut and the largest tax reform in the history of our country” at a news forum in Washington.
“I don't know that they're going to get larger deficits, maybe the first year or two,” Kudlow said in an interview from Washington with CNBC. “Or even the first three. I'm here to say that the business tax cut side is going to pay for itself. Give it a couple, three, four, five years.”
Kudlow, who helped to shape the Trump campaign’s economic plan, echoed his earlier statements that the business tax cut will pay for itself by unleashing U.S. productivity and economic growth of 3 percent or more. The U.S. economy has grown by 3.2 percent a year on average since 1947, but never exceeded 3 percent during the Obama administration.
“The greatest antidote to budget deficits is economic growth. We have proved that in the '60s, we proved that under Kennedy and Reagan and Clinton,” he said. “The reason deficits are so huge, we haven't grown in 15 years. The revenues haven't come pouring in. We're not getting enough new investment.”
Mnuchin and White House chief economic adviser Gary Cohn will provide more details about the tax plan at a briefing on Wednesday afternoon. Changes to personal income taxes may come next year.
The plan is expected to omit tariffs on imports advocated by House Republicans, which would have raised revenue to offset the deep cuts. Kudlow has been a vocal opponent of the “border adjustment tax” that would also subsidize some U.S. exports.
House of Representatives Speaker Paul Ryan said he had seen a "sneak preview" of the plan, Reuters reported.
"We like it a lot, it puts us on the same page, we’re in agreement on 80 percent and on the 20 percent we’re in the same ballpark," Ryan said. The Republican plan to reform the healthcare system was withdrawn last month amid intraparty squabbling.
“Conservatives are going to be very happy with this plan, because it achieves a lot of the objectives that we’ve wanted: lower business taxes, simplification and not a major tax increase that is unacceptable,” Stephen Moore, an economist at the Heritage Foundation who also advised Trump’s campaign and helped craft his tax proposal, told the New York Times.
Kudlow is host of "The Larry Kudlow Show" and author of "JFK and the Reagan Revolution: A Secret History of American Prosperity," written with Brian Domitrovic and published by Portfolio.
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