Testimony on Tax Policy at the Reagan Library

The big bill will be pro-growth, pro-prosperity. I disagree that it explodes the deficit, but we still have monumental spending problems. PS: Ask CBO & JCT to release their source code.

In this post I share my spoken remarks at the House Ways and Means Full Committee Field Hearing, held at the Ronald Reagan Presidential Library in Simi Valley, California, on July 26, 2025. My longer and more detailed written testimony can be accessed here, and video of the testimony here.

Simi Valley is a beautiful location, and I highly recommend the library and its exhibits, including the Boeing 707 that President Reagan used as Air Force One. Of course, I can’t help reflecting on the fact that Stanford University could have had this national gem on its own campus right in Palo Alto. “Stanford to be the Site of the Reagan Library,” the New York Times proclaimed in February 1984.

But students and faculty protested, fearing that the Reagan Library and its affiliated policy center would turn Stanford into a political “Reagan University”. Ironically, the opposite has happened: Stanford today is dominated by progressive ideology, while the Reagan Library stands in Simi Valley as a thriving center for research, debate, and national memory—one that could have significantly enriched Stanford’s intellectual landscape.

I am a Boston Red Sox fan, and remembering this gives me a similar feeling to watching the footage of the baseball rolling through Bill Buckner’s legs in Game 6 of the 1986 World Series.

But that isn’t what I said at the hearing. Here is what I did say.

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Chairman Smith, Ranking Member Sanchez, and members of the committee, thank you for the opportunity to testify on the recently passed One Big Beautiful Bill Act (OBBBA) and the importance of sound tax policy for the future of economic growth.

Strong economic growth benefits all Americans, by raising incomes across the board. But in January 2025, the Congressional Budget Office (CBO) projected real GDP growth to average just 1.8 percent over the next decade. To put that in perspective, had growth been that low over the last 50 years, the US economy today would be nearly 40 percent smaller.

Fortunately, Congress recognized the imperative for pro-growth tax policy in the OBBBA. Let’s start with the business tax reforms.

First, the Act restores, and makes permanent, full expensing of business equipment, and temporarily extends it to certain structures. In research with my coauthors Jon Hartley and Kevin Hassett, we found that the 2017 business tax reforms led to substantially higher investment rates. So these extensions are a powerful step for growth.

Second, the Act restores permanent full expensing for domestic R&D. Since 2022, firms could only deduct these costs over time. Reversing that change will boost innovation.

Third, the Act fixes the limit on business interest deductibility to apply in a way that reduces distortions against investment.

The Tax Foundation estimates that these three changes alone will raise long-run GDP by 0.8 percent—roughly $250 billion per year in today’s terms.

Beyond these three provisions, the Act renews other critical pro-growth tax reforms. Most notably, it makes permanent the TCJA’s individual income tax rate reductions and the Qualified Business Income (QBI) deduction for America’s vital pass-through businesses.

Pass-throughs—LLCs, S-corporations, sole proprietorships, and partnerships—represent over 95 percent of all U.S. businesses and generate nearly 60 percent of reported business profits. By extending rate relief and improving access to the QBI deduction, the Act cuts taxes for households, and also strengthens incentives for pass-through firms to invest, hire, and grow.

In my research on California’s steep tax hikes—the top marginal income tax rate here is now 55 percent higher than it was 20 years ago—I’ve shown that elevated tax rates suppress economic activity. Not only through outmigration but especially for those who stay.

When federal tax rates rise, the same happens. When you reduce tax rates, you unleash prosperity.

Now, one obstacle to pro-growth tax reform is how the CBO and JCT measure its supposed costs. These agencies routinely underestimate the economic effects of tax cuts. Compounding the problem is a lack of transparency in their economic models. Congress should address this by requiring these models, and their source code, to be made publicly available.

The CBO estimates that the Bill will raise primary deficits by at least $3.4 trillion. But if they had used behavioral assumptions consistent with my research, the score would be far lower.

Just a 0.5 percentage point increase in productivity growth—a plausible outcome—would raise annual growth to 2.5 percent and reduce deficits by $2 trillion over the decade. That would offset more than half the projected cost, without counting tariff revenue raised by the administration. The Act does not explode debt, but it does promote prosperity.

I also applaud Chairman Smith and this Committee for opposing a Global Tax Code, which would surrender U.S. sovereignty. Going forward, this Committee should make sure that the understanding reached at the G7, which led to the removal of Section 899 retaliatory measures from the draft, is properly implemented. Congress must retain its full Constitutional right to cut taxes without seeking foreign approval or pledging revenue to other nations.

America did not fight a revolution so that 250 years later we’d have to ask France for permission to cut our own tax rates.

Congress should now keep going down the path it trailblazed with the 2017 and 2025 acts. A top priority should be permanent full expensing for all capital purchases, and rate reductions for individuals and businesses paired with more limits to other deductions.

Beyond taxes, regulatory reform is critical for growth. For example, permitting reform may offer bipartisan opportunities. The Majority could also seek further Byrd Rule compliant provisions that reduce regulatory burdens. A terrific example is Section 60026 of the Bill, which allows applicants to pay 25% higher fees for expedited federal environmental review. That is an ingenious provision, since the economic cost of delay and uncertainty from these NEPA reviews dwarfs the review fees.

Finally, no tax policy can be sustainable without spending discipline. The OBBBA made progress, but further restraint is needed. Without it, today’s tax cuts won’t remain truly permanent—because tomorrow’s taxes or inflation (which is also a tax) will pay for unchecked spending.

Four decades ago, President Reagan asked Americans to help put our financial house in order so that tax, spending, and monetary policies would support—not hinder—growth. As we meet here at the Reagan Library, the challenge is even greater. But the call remains the same.