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@ DEPARTMENT OF THE TREASURY June 4, 2019 ‘The Honorable Charles E. Grassley Chairman Committee on Finance United States Senate ‘Washington, DC 20510 Dear Chairman Grassley: ‘On May 22, 2019, the Congressional Research Service (CRS) published a report entitled, “The [Economic Effects ofthe 2017 Tax Revision: Preliminary Observations” (Report), which claims 0 examine the preliminary effects of the [Tax Cuts and Jobs] Act during the first year, 2018." ‘The Report provides analysis of TCJA’s effects on multiple economic data points including, but ‘not limited to, Gross Domestic Product growth, wage grovth, and growth in private investment. ‘After careful review of the Report, it appears that CRS’s economic analysis of TCIA used a ‘awed methodology that tacitly assumed the anticipation of the Trump Administration's tax and regulatory relief had no effect on the economic outlook of the United States. This assumption ignores the widely applied principle among economists that individuals and organizations have “rational expectations.” That is, when people expect policy to change, they take responsive actions —such as investing and hiring—even before the policy is implemented. The exclusion of this economic theory calls into serious question both the validity ofthe methodology used as. ‘well asthe nonpartisan and objective nature of CRS'"s work produc. ‘Beginning in January 2017, the Trump Administration began implementing an economic agenda to reduce burdensome regulations, engage the private sector to promote pro-growth policies, and negotiate trade deals to open up market access for American businesses.* Therefore, appropriate—and truly unbiased—economic analysis should have benchmarked the impact of the ‘Trump Administration's economic agenda against forecasts ofthe economy generated prior 10 January 2017. ‘Analysis that commences after that time—let alone after the polices are implemented—is biased by the fact that people inthe economy started responding immediately tothe aggressive agenda “Jane G. Gravel, Donald. Mapes, “The Economie EMets ofthe 2017 Tax Revision: relininary Observations,” Congressional Research Service (May 2, 2019), anal at a nares 24 produto RU 2 Exec. Onder 13771, “Reducing Regulation and Costroling Regulatory Costs (Jan 30,2017), atv esdenal tie-ordet reducing : ‘aulalor-osiss "President Trump's Fist Week of Aion,” White Hove Press Office (en 28,2017), Zw. Wleouse rssdencungs: fist 1 "President Trump: Geting Amerians Back To Werk" White House Press Office (Feb, 42017). Ser whitehouse sovTafigs” ‘dees presides geting anetiansbackwotU, pursued by President Trump, including the widespread expectation of individual and corporate tax cuts and the resultant effects on the economy: business eptimistn skyrocketed, constimer sentiment grew significantly, and the stock market appreciated considerably.? Markets, businesses, and consumers began incorporating into their acivties the expectation of tax reductions, trade nee and an improved business climate—consistent with rational CRS also seems to have excluded a numberof critical data roints that would likely have led to vastly different conclusions regarding the suecess of the Administration's economic agenda. ‘While there are many data points to reinforee these arguments, the Department of the Treasury's Office of Economic Poliey ereated chars that highlight the most glaring deficiencies inthe Report. Those charts are enclosed as an appendix, Perhaps unsurprisingly, media entities appear to have used the Reports conclusions to publish a seties of misleading press accounts.’ These news stores repeatedly cite the Report as the work produet ofa “nonpartisan” entity within the Library of Congress. CRS's Mission Statement requires it to be “objective” in its research and analysis*an¢ a CRS Report specifically states that “CRS cannot prepare reports...that are ofa partisan nature...."” For the reasons outlined in this eter, we believe that CRS has failed to live up to these mandates, ‘Thank you for your attention to this matter. Should you have any questions, please direct your staff to contact the Office of Legislative Affairs Sincerely, David Kutter Assistant Secretary for Tax Policy ‘Dow Jones Indusial Average” MadeiWate, psn marksvash somn jn as visited May 1, 2019). Se also Append Figures 3 and for consumer sniment and busines optimism, « Saget, Thomas J, "Rational Expectation" The Library of Economic and Liberty Encyclopedia (24 8), eal tip coolio Expectations hl (ast vised May 31,2019). 5 Se, eg, Michal Hitz, "A devastating analysis ofthe ax ot sows t's done vinully no eonomic got” LA. “Tes (May 29,2019), PPlp Bump, “Anew report further undermines Trump's aim that he ta ets were economic ‘Tock fs ‘Wash. Post (May 282019), ips vn shies 20190838 herundrings. ‘numa alserseconomiscke-fie|; Nv El “Trump's tax In bad sal effect on eenory. wags: Study” The Fil (May 28,2019), hps./thehill com olcvnancs84583Ceaslav-had small fecon- ‘conan -vages sid); Anhur Delaney, Malt Fuller, “GOP Tax Law Doing Lite For The Economy, Even Les For ‘Workers: Congressional Study" HuffPost (May 28,2019), juts ww lips com eit £99 bonuses» SedadOesboaee7 1585403), * About CRS, Libary of Congress, to! os goversinf/sbow (ast vised May 31, 201) ” Authors Redacted, “Congressional Oversight Manual." Congressional Research Service (December 19,2019, lable ‘mms. everesepor.com/iles20141219 RL30240 AO24SN30%0sSe2 86 GhleDerSO63FlAtE 2b pt Enclosures ‘entical letter sent to: ‘The Honorable Richerd E. Neal ‘cc: ‘The Honorable Ron Wyden ‘The Honorable Cindy Hyde-Smith ‘The Honorable Chris Murphy ‘The Honorable Kevis Brady ‘The Honorable Tim Ryan ‘The Honorable Jaime Herrera Beutler