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Report: New York, Dallas Fed presidents caution against tax cuts without reform

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Report: New York, Dallas Fed presidents caution against tax cuts without reform

The presidents of the New York and Dallas Federal Reserve banks said short-term tax cuts that increase the national deficit are not worth the economic consequences they would bring, according to a report from The Wall Street Journal.

Robert Kaplan, president of the Dallas Federal Reserve, said if the reform plan being pushed by President Donald Trump and Republican congressional leaders is, "short-term stimulus, or basically a tax cut funded by growth in the deficit, I actually think that could be harmful," according to the Journal.

The New York Fed's William Dudley said "we are a long way from tax reform," but added that broadening the base and lowering corporate tax rates "would be good for the United States" and help the economy over time.

Dudley warned of the nation's growing debt, adding that debt service costs will increase as the Fed raises short-term interest rates.

"Investors right now aren't focused on debt service burdens anywhere in the world," the Journal quotes Dudley as saying. "That could change quickly."

Kaplan said a tax cut funded by increasing the debt would make the country more highly leveraged than it is currently.

"We are either at full employment or are nearing full employment," Kaplan is quoted as saying in the Journal story. "My concern is that if we do a tax cut financed by increasing the debt, the deficit, we'll get the short-term up and then come right back down to trend growth, and when it's over, we'll be more highly leveraged than we were before."