Mnuchin as Treasury secretary will bolster the economy

If you want to understand the recent “Trump rally” – how the stock market has hit record highs in the weeks following Election Day – a recent CNBC interview of President-elect Trump’s nominee for Treasury secretary, Steven Mnuchin, provided some important clues.

{mosads}To start, Mnuchin did not descend from Trump tower in Manhattan to fill a few minutes on one of the Sunday morning shows, reciting carefully choreographed talking points. Instead, he went on a network the financial world watches on a Wednesday morning ahead of the market open, and he was, by Washington standards, refreshingly blunt on a range of important economic issues.

Most importantly, though, Mnuchin embodied a combination of free market positions, clearly evident expertise about the business world, and a sunny, can-do attitude about the incoming administration’s desire to cut through the thicket of red tape the past eight years of big government policies have produced.

After rightly discussing the need for sustained 3-4 percent annual economic growth in the United States, he went on to outline the need for fundamental tax reform. “This will be the largest tax change since Reagan,” Mnuchin boldly noted, referring to the last major overhaul of the tax code more than 30 years ago. That is music to the ears of American job creators, who have battled a complex, uncertain and uncompetitive tax code for decades.

We all know tax reform is critical to a healthy economy.  Our current uncompetitive business tax rates punish American companies and put our job creators at a huge disadvantage against their international competitors. While countless politicos have discussed the need for tax reform for years, Mnuchin is a change agent who is ready to tear down burdensome regulations and slay some of Washington’s sacred cows.

Every year, it becomes more and more important for policymakers to make our tax policies competitive – because the costs of conducting business continue to go down elsewhere around the world. Belying its reputation for liberal policies, even Europe has recognized this new landscape and many of its nations have realized the need for more competitive tax rates. Meanwhile, the United States retains one of the very highest corporate tax rates in the world.

Tax competition doesn’t just exist at the international level, either. In our annual study Rich States, Poor States for the American Legislative Exchange Council, Dr. Arthur Laffer, Stephen Moore and I show how tax competition is a major factor in determining economic growth across the 50 states.  Policymakers acutely realize the need to stay competitive in the race for job creation and economic growth. That’s why states are attempting to emulate the policies of growth engines like Texas and Florida, while avoiding the uncompetitive policies of financially troubled states like California and New York.

Mnuchin clearly understands the dynamic nature of the relationship between policy and competitiveness. One place he demonstrated it was a brief comment in his CNBC interview about a relatively arcane budget fight in Washington. The issue of “dynamic” vs “static” revenue scoring may put most Americans to sleep, but this policy debate will determine the official cost of tax policy to the government and perhaps significantly alter the outcome of tax reform efforts.

Dynamic scoring simply takes into consideration an economic reality: When tax policy changes, it immediately affects the incentives of individual taxpayers – and that in turn may dramatically alter their behavior in the market. This wonky policy dramatically improves upon the accuracy of traditional, “static” scoring methods, which assume people will go on behaving the same way even when they face entirely different tax incentives. Dynamic scoring should be a no-brainer, like picking an iPhone over a flip-phone, except it harms the ability of big government supporters to argue against tax cuts, so instead the policy is “controversial” in some circles.  Mnuchin, to his great credit, outlined his support: “of course you have to have dynamic scoring. It would make no sense otherwise.”

This week our nation celebrates the peaceful transfer of power between administrations with vastly different policy goals. It is clear the market has responded favorably to the clues it has been given on the much-needed tax and economic reforms that will be considered in the weeks and months ahead. Steven Mnuchin is a change agent who has committed to reduce tax rates for job creators, which will provide a much-needed economic boost for the hardworking taxpayers of America.

Jonathan Williams is chief economist at the American Legislative Exchange Council and vice president of its Center for State Fiscal Reform.

The views expressed by contributors are their own and are not the views of The Hill.