Public opinion on the tax reform bill is improving and is likely to continue to do so as workers see their take-home pay increase despite the repeated lies of the bill’s opponents. But that’s not the end of the story. The reductions included in the reform are only sustainable so long as Washington is fiscally responsible.
Veronique de Rugy recently explained:
[I]t is worth trying to fight for fiscal responsibility by reminding elected officials that debt and deficits aren’t good. They’re expensive. They slow the economy over time. They make it more difficult to respond to true emergencies. And they make it likelier that tax cuts will be undone in the future.
Recent decades have seen frequent transfers of power in Washington and there’s little reason to believe that trend will change any time soon. If Republicans hand Democrats a budget full of red ink, the latter will be all too happy to see it as an excuse to raise taxes.
In a separate piece, Veronique identified a second threat to tax reform:
[T]hanks to tax reform, American manufacturers and other businesses are now more competitive internationally. There’s much less incentive to move economic activity offshore solely for tax reasons. But ramping up economic protectionism would undermine these gains and harm the economy.
Many U.S. manufacturers have global supply chains, meaning they import materials and other inputs, even if the final product might then be exported. Raising the prices of these goods with tariffs makes it harder for U.S.-based businesses to compete.
…A study published by the Business Roundtable estimates that the fallout from terminating NAFTA would be a loss of 1.8 million U.S. jobs in the first year.
No friends to free trade themselves, Democrats would be all too eager to redirect the blame for an economic slowdown resulting from NAFTA withdrawal onto tax reform. They will take any excuse they can get to re-raise taxes and would be much likelier to find themselves with the political power to do so with a weakening economy during the next election.
CF&P President Andrew Quinlan made a similar case:
There are legitimate areas where trade can be improved. In some cases, our trading partners have maintained barriers when we have brought ours down. If President Trump can increase trade liberalization by compelling them to reduce barriers and open their markets, then all the better. But we must be careful not to take steps that result in markets previously accessible being closed off again.
…American agriculture has thrived thanks to NAFTA’s elimination of tariffs between the US, Canada, and Mexico, with exports to our North American partners growing from $9 billion in 1993 to $41 billion by 2014. If tariffs suddenly return because the US ditched NAFTA, it will throw the industry, and many others, into chaos.
[Trump] had the right idea last year when he urged lower taxes on American businesses. Making the United States the premier destination for business investment, by lowering taxes and reducing burdensome regulations, is the true path to prosperity.
Ripping up NAFTA, on the other hand, with the inevitable result that markets will be closed off to American businesses leads only to economic decline. Even worse, it would provide opportunity for Democrats to blame the resulting fallout on last year’s tax reform, which they would then likely be in the position to try to reverse.
If federal budget red ink is a threat to tax reform, then so too is bad economic performance. After all, a principle argument for tax reform was that faster economic growth would, in the long run, offset the revenue losses from lower tax rates by expanding the tax base. Politically, that case gets a lot harder to make if the economy turns down. And there are few ways to tank the U.S. economy faster than withdrawing from NAFTA.
If Trump has any desire whatsoever to seek reelection, NAFTA withdrawal should be off the table. There are other ways he could satisfy his working-class base or claim a win on trade than scuttling an agreement that has been highly beneficial for American businesses and consumers alike.
