President Trump's administration says his tax cut will pay for itself. It turns out it's really hard to find an economist who agrees.
The University of Chicago's Booth School of Business regularly polls economists on controversial questions. In a survey the school published last week on Trump's tax plans, only two out of the 37 economists that responded said that the cuts would stimulate the economy enough to cancel out the effect on total tax revenue.
Those two economists now both say they made a mistake, and that they misunderstood the question.
“I screwed up on that one,” said one of those two economists, Kenneth Judd, when asked about his response to Trump's tax claim. “I meant to say that this is a horrible idea, a bad idea — no chance in hell.”
The other respondent who said that Trump's tax cuts would pay for themselves was Bengt Holmström of the Massachusetts Institute of Technology, who confirmed in an email to The Washington Post that he had also misread the question.
Besides Judd and Holmström, another 35 economists said that the tax cuts would not finance themselves, and five more did not answer the question.
In total, there is not one economist in the Chicago poll who believes that Trump's cuts would pay for themselves, suggesting his administration might not be able to deliver on a crucial promise.
Republicans have long argued that reducing taxes will encourage Americans to work and invest, and that the increased taxes the government collects on those wages and gains from new investments will cancel out the forgone revenue. Now, the Trump administration is relying on that reasoning as they move ahead with plans to slash taxes without bringing down government spending.
Treasury Secretary Steven T. Mnuchin told investors at a conference in Beverly Hills last week that Trump planned to make up for reducing taxes by stimulating the economy and by eliminating breaks and loopholes, although the administration has not offered details about their plan.
“We expect to pay for this through economic growth and through eliminating a lot of deductions,” Mnuchin said.
Mnuchin said that Trump's economic policies could accelerate the pace of economic growth from about 2 percent to as much as 3 percent a year, but Judd is not buying the administration's numbers.
“The numbers do not add up,” he said.
“We say that about all the presidents and their plans, and this — this is orders of magnitude worse,” added Judd, who is affiliated with the conservative Hoover Institution at Stanford University. “The numbers are just in a different universe.”
Judd said that not even President Ronald Reagan believed that cutting taxes would be so great for the economy that the cuts would pay for themselves. If hiring and investing did not pick up under Trump's plan, the government would be forced to borrow more to cover the difference, and experts warn that the additions to the national debt could become a burden on the economy.