November 20, 2017 at 4:34 PM
The House Republican tax plan would add $1.3 trillion to the national debt over a decade, even after accounting for new economic growth from the bill, according to a nonpartisan study released Monday.
The nonpartisan Tax Policy Center is the third outside group to conclude that the bill would add to the deficit, contradicting Republicans’ claim that the bill would effectively pay for itself via a surge in economic growth.
The Tax Policy Center found that the economic growth the bill would create would add $169 billion in additional tax revenue over the next decade. But that would be far outweighed by $1.436 trillion in revenue losses over the decade due to the bill’s tax cuts, leaving the bill with a net addition to the deficit of $1.266 trillion.
The Tax Policy Center found that the House Republican tax-cut package would add 0.6 percent to U.S. gross domestic product in 2018 but just 0.3 percent in 2027.
The White House and Republican leaders have repeatedly criticized the Tax Policy Center’s work, saying it doesn’t accurately measure the positive economic effects from economic growth.
Treasury Secretary Steven Mnuchin has said the GOP tax plan would add roughly $2.5 trillion in new revenue over 10 years, far surpassing the $169 billion projected by the Tax Policy Center. President Trump has said the tax plan could lead to a loss in revenue in the near term but that a jolt of economic growth in the future would more than recoup the losses.
But, so far, most prominent outside groups have published findings similar to the Tax Policy Center’s, projecting that the tax-cut plan would add large amounts to the debt, even when accounting for economic growth.
The Tax Policy Center concluded that the bill would reduce average tax rates for many households in the first few years, boosting their income and leading to more spending.
“These economic benefits would be modest because most tax reductions would accrue to high-income households, who spend a smaller share of any increases in after-tax income than lower-income households,” the Tax Policy Center said.
The report also said that the economic impact of the tax cuts could be greater if the economy were in a recession, but unemployment is already very low and the economy has shown signs of growing at a faster clip without the tax cuts.
The Penn Wharton Budget Model at the University of Pennsylvania found that the House GOP tax bill would grow the economy by between 0.4 percent and 0.9 percent over 10 years but still lead to a loss in revenue of between $1.470 trillion and $1.697 trillion.
And the conservative-leaning Tax Foundation, which has been broadly supportive of the bill, estimated that the House GOP tax bill would cut revenue by close to $2 trillion, but then raise revenue by 3.5 percent over 10 years, adding back $908 billion in revenue. On net, the Tax Foundation found, the bill would add roughly $1 trillion to the debt.
These outside analyses are important because, so far, the nonpartisan government budget watchdogs have not issued their own analysis that takes into account the macroeconomic impact of the GOP tax plans.
The House of Representatives passed its tax-cut plan just two weeks after it was introduced, faster than the Joint Committee on Taxation was able to put together its own assessment.
There also has not been an official government forecast for the Senate Republican bill, which was amended several times last week as the Senate Finance Committee made changes to its design.
The projections are not just academic exercises, as they may influence key swing voters on the GOP bills.
Sen. Bob Corker (R-Tenn.) has said he would not support tax legislation that adds to the government’s debt, and White House officials are trying to convince him that the bills would pay for themselves. Independent forecasts, at least so far, don’t support that contention.