Tax cut law helps future generations

Borrowing to buy an asset that produces more income than the interest expense makes your children richer. The debt doesn’t make them poorer. Without this basic understanding of finance, deficit hawks can’t distinguish deficit-financed consumption from borrowing that increases the economy’s capacity to pay the interest on the borrowed money.

The latter makes future generations richer, as the Republican tax cut law does. The cut also spreads these gains across all income levels. A one-time increase in gross domestic product that generations can enjoy for years to come is not a “sugar high.”

In April, the Congressional Budget Office predicted that the tax cut law, which includes the partial expiration of the middle-class tax cuts and repeal of the health care mandate, would eventually increase real GDP and tax revenue beyond CBO’s pre-tax cut estimates.

After raising its growth forecasts, CBO now expects nominal GDP will be nearly $750 billion higher annually — three times higher than its expected impact from the cut — and publicly held federal debt as a percent of GDP will be lower at the end of its 10-year forecast period than before the cut.

Arguably, Republican-controlled government — including its tax cut legislation, business-friendly regulations and conservative judges — made future generations more prosperous than CBO’s original estimate admits. While business tax cuts alone may have grown GDP without significant deficits, it’s unlikely they would have passed without the middle-class cuts. And it’s unlikely growth would have been unleashed if Congress had failed to pass the legislation.

Deficit-financed consumption has left America with worrisomely large deficits that grow larger as baby boomers retire. The tax cut legislation increases America’s ability to pay for these expenses.

Ed Conard is an American Enterprise Institute visiting scholar, a former Bain Capital partner and author of “The Upside of Inequality: How Good Intentions Undermine the Middle Class.”