Republicans began planning for a day like Thursday the moment they took control of Congress four years ago, almost immediately changing the way tax cuts would be officially scored. Instead of just calculating how much reducing taxes would add to the deficit, the new system would also take into account how much economic growth would follow tax relief.
It was a way to codify, in the rules of Congress, Republicans’ belief that tax cuts largely pay for themselves.
Yet on Thursday, the calculation didn’t go the way they had long wanted. The nonpartisan Joint Committee on Taxation ruled that the tax plan Republicans had hoped to move swiftly through the Senate would add $1 trillion to the deficit — even after accounting for the positive impact from economic growth.
The announcement helped halt progress on the tax effort and presented a stark challenge to a core tenet of the Republican Party’s economic philosophy.
Sen. Patrick J. Toomey (R-Pa.), who has helped shape the tax effort, declared on the Senate floor the same day, “If this legislation is signed into law, we are going to have a smaller deficit in future years than we are on a path to have now.”
His was only the latest comment from a prominent Republican spelling out a faith in tax cuts not adding to the deficit.
“The plan will pay for itself with growth,” President Trump’s treasury secretary, Steven Mnuchin, said this spring about Republicans’ emerging tax plan.
“Faster economic growth helps raise the economy, which raises revenue. And that helps us tackle the deficit,” House Speaker Paul D. Ryan (R-Wis.) said in October.
Republicans seemed almost shocked by how little credit the report gave to the power of tax cuts to drive economic growth. The tax committee projected the bill would raise economic growth by only 0.8 percent over a decade, a small fraction of what Republicans had projected.
“That’s a little surprising to me because obviously we’ve seen estimates all over the place, but less than 1 percent growth over 10 years is a little hard to process,” said Sen. James Lankford (R-Okla.).
Some Republicans argued that the tax committee’s report just couldn’t be correct.
“The good news in all this is what it demonstrates is what we’re trying to do here actually generates economic growth. It actually generates additional revenue for the federal treasury,” said Sen. John Thune (R-S.D.). “We happen to think the assumptions used by the Joint Committee are not accurate.”
Yet outside experts were not surprised by the results, which align with the view of many mainstream economists and several independent analyses.
“It would be awesome if you could cut taxes and it wouldn’t cost anything, but there’s not any evidence the world works that way,” said Len Burman, co-founder of the Tax Policy Center and a past president of the National Tax Association.
Even if they disagreed with the conclusions, Republicans will now be forced to reckon with them. In addition to the release of the Joint Committee on Taxation report, the Senate parliamentarian ruled against a proposal favored by a small number of Republicans that would have automatically hiked taxes if the bill was adding too much to the deficit in future years.
That left Senate leadership with nothing to reassure a small number of deficit hawks led by Sen. Bob Corker (R-Tenn.), who is insisting on a mechanism to limit the tax bill’s cost.
Republicans have a slim margin to pass legislation, given that they have a 52-to-48 margin in the Senate. Sen. Jeff Flake (R-Ariz.), who like Corker is retiring, also appears unwilling to vote for the legislation without a mechanism to keep the deficit from growing.
As Republicans have worked toward an overhaul of the tax code, making the case that tax cuts can pay for themselves has been central to their message because the party has also spent so many years warning about the risks presented by the nation’s ballooning debt.
Many GOP lawmakers came to office on the promises of reining in the federal debt, which nearly doubled under President Barack Obama. And Republicans in earlier incarnations of their tax plans had planned to fully offset tax cuts with other tax hikes, but those plans fell apart in the face of corporate opposition.
Since then, party leadership has shown less concern for the nation’s fiscal sustainability. Onetime fiscal hawks like White House budget director Mick Mulvaney, who used to favor radical actions to stem the deficit as a member of the House, have now put far more emphasis on tax cuts.
The current plan would spend about $1.5 trillion over a decade on tax cuts benefiting individuals and corporations. The Senate bill would make the tax cuts for individuals temporary, to comply with Senate rules that prevent the passage of legislation that would grow the deficit after a decade.
The House has already passed its legislation, and anything that passes the Senate would have to be reconciled with the House bill before it could be sent to Trump for his signature.
Wall Street bank Goldman Sachs put out a warning Thursday morning that the U.S. debt is on track to hit unsustainable levels in coming years. Their note followed testimony from Federal Reserve Chair Janet L. Yellen, who cautioned that the country’s growing debt is “the type of thing that should keep people awake at night.”
Goldman Sachs noted Thursday that America’s debt is already at the highest level since 1950 as a fraction of the economy. The tax bill would make that higher.
Senators will return to work on Friday to discuss other tax hikes to offset the $1 trillion cost of the bill, facing a new uncertainty they hoped to avoid.