Tenney, a member of the House Financial Services Committee, said in a radio interview, “Already the so-called deficit with the tax cuts — which you’re never going to see the left wing or the left-wing media talk about — we’ve already eclipsed that.”
The gross national product, she said, had grown more than $1.5 trillion since Trump signed the Tax Cuts and Jobs Act at the end of 2017. “So when we’re concerned about a deficit being created or a debt being created — the economy has already grown an excess of $1.5 trillion,” she said.
But that’s not how it works. Tenney is mixing up economic growth and tax revenue. Let’s dig in.
Trump’s tax cuts are estimated to cost $1.5 trillion over 10 years. The Congressional Budget Office expects they will spur net economic growth at the same time that they ramp up the federal debt.
The tax changes “are expected to encourage saving, investment, and work,” the CBO said. “In CBO’s projections, it boosts the level of real GDP by an average of 0.7 percent and nonfarm payroll employment by an average of 1.1 million jobs over the 2018-2028 period,” according to an April 2018 report.
Even after accounting for that growth, the deficit in the federal budget would increase by $1.9 trillion over the same 10-year period, CBO estimated. In a nutshell: While Trump’s tax cuts would generate net economic activity, the government would not reap as much revenue as it did under the previous, higher tax rates, the CBO analysis found.
Tenney referenced the gross national product (GNP). This is similar to the gross domestic product (GDP) but factors in only goods and services produced by U.S. residents. The GDP is broader and accounts for all goods and services produced within the country.
Only a fraction of the total $1.5 trillion in economic gains Tenney mentioned would be taxable, so it’s inaccurate to say the cost of the tax cut has been offset already. Tenney’s interviewers at WUTQ-FM quickly jumped on her claim and pressed her to explain. In the end, she shifted somewhat, from saying the tax cuts had paid for themselves in six months to saying “in the end, the tax cuts are going to pay for themselves.”
“As we get into the end of the year, and you start seeing what is happening as people are seeing their tax cuts realized when they start paying on an annualized basis for their tax cuts, going into next year, I think you’re going to see the so-called deficit,” Tenney said. “I think you’re going to see in the end, the tax cuts are going to pay for themselves, as predicted even by some of the government measures.”
Tenney’s campaign manager, Raychel Renna, pointed to a Wall Street Journal article about a one-page analysis of the tax plan written by the Treasury Department. Using a GDP growth forecast of 2.9 percent over the next decade, administration officials estimated $1.8 trillion in added tax revenue, which would more than offset the $1.5 trillion cost of the tax cuts.
But other analysts say that’s optimistic and predict growth will be closer to 2.2 percent, as the New York Times reported. After its most recent meeting, on June 13, the Federal Open Market Committee said it expected 2.8 percent GDP growth in 2018, 2.4 percent in 2019, 2 percent in 2020 and 1.8 percent in the longer run. The FOMC is the Federal Reserve’s policymaking arm.
“The economy is growing, jobs are being created and the federal government is collecting record tax revenue,” Renna said. She added, “It’s also worth noting that the CBO projection doesn’t always get it right. One notable example is that their projections about Obamacare enrollment were significantly off the mark.” (The CBO overestimated how many people would buy insurance on the exchanges set up by the Affordable Care Act, but its overarching estimate of how many people would gain insurance coverage was largely on target, as we’ve reported.)
Renna also cited a GDP growth forecast from the Federal Reserve Bank of Atlanta, which is predicting 3.9 percent GDP growth for the second quarter of 2018. The Atlanta Fed cautions that this is an unofficial forecast (updated every few days). In any case, that covers only one quarter, but there are 39 other quarters to consider during the 10-year time frame for analyzing the cost of Trump’s tax cuts.
The Pinocchio Test
Tenney said Trump’s tax cuts had paid for themselves in six months and wondered why no one was covering this story. Maybe because it’s totally wrong.
The congresswoman seems to have gotten her wires crossed, confusing total economic growth with tax revenue collections. Her revised claim that Trump’s tax cuts are on a 10-year path to pay for themselves is also extremely dicey, so we award Four Pinocchios.
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