On Tuesday night, the White House released a statement urging the House of Representatives to pass its tax bill this week. President Trump, just back from his Asia trip, is expected to appear in person Thursday in the halls of Congress to urge Republicans to vote yes for the bill.
But the statement also included this line:
“Based on a review of more than 100 academic papers, the White House Council of Economic Advisers (CEA) estimates that the corporate provisions in H.R. 1 would grow the economy by between 3 and 5 percent over the next 10 years, which if applied to 2027 gross domestic product projections, would result in an additional $700 billion to $1.2 trillion in economic output per year.”
That's a lot of numbers and economic jargon, and it makes it sound as if the bill would generate many benefits for the economy. But the statement also suggests that the White House isn't so confident about one of its other big predictions: That the bill — which cuts corporate and personal income taxes by $1.5 trillion over a decade — will pay for itself.
Many mainstream economists agree that reducing taxes would stimulate the economy somewhat as businesses and families go out and spend more. They also say the government would get additional tax revenue, but not nearly enough to offset what was lost from the lower rates.
The economy would have to grow 6 to 8 percent faster in the next decade to fully offset the costs of the bill, according to numerous respected economists, including those at the Tax Policy Center, the Tax Foundation, the Committee for a Responsible Fiscal Budget and the Penn Wharton Budget Model. The White House is estimating only 3 to 5 percent growth.
The most favorable model for the White House is from the Tax Foundation, a right-leaning think tank, which predicts 3.5 percent growth over the next decade. But even the Tax Foundation concludes the bill would still add about $1 trillion to the debt. Nicole Kaeding, an economist at the Tax Foundation, said 5 percent in additional economic growth over the next decade would not be adequate.
“A very rough rule of thumb is that an additional 1 percent increase in GDP would lead to approximately $250 billion in additional revenue growth,” says Kaeding.
Other think tanks predict an initial spike in growth that would fade fairly quickly, making it even harder for the tax cuts to pay for themselves. The Penn Wharton Budget Model predicts the cost of the tax bill will be $1.5 to $1.7 trillion after accounting for faster growth.
The nonpartisan Committee for a Responsible Fiscal Budget says the true cost is closer to $2 trillion because increases in the debt in the coming years will drive up interest rates, making it even more expensive to service the debt.
“The White House estimates are pretty far out of line with mainstream models,” said Mark Mazur, head of the Tax Policy Center and a former assistant secretary for tax policy in President Barack Obama's administration.
Neither tax cuts pursued by George W. Bush nor Ronald Reagan paid for themselves, later analyses showed.
Asked about the growth projection, the White House argued that the United States would be better off with faster growth and it's worth it to attempt to get that by enacting the tax plan.
Top Trump officials also make the case that the tax cuts for businesses and individuals are just one part of the bigger economic vision, which they're calling “MAGAnomics,” which includes regulatory rollbacks, tighter trade regulations and additional budget cuts. Taken together, they claim the economy could grow even more than 3 to 5 percent faster over the next decade.
“For months I have been talking about MAGAnomics, which is the entire package of the President’s agenda: pro-growth tax reform, fiscal restraint, regulatory reform, ending abuse by our trading partners, and rebuilding America’s infrastructure,” Mick Mulvaney, Trump's budget director, said in a statement. “The additional growth from all of those policies is needed to put us on a sustainable fiscal path and move our budget toward balance.”
The question of whether the tax cuts pay for themselves will weigh on Congress as the legislation moves forward. Under the Senate rules Republicans are trying to use, to pass the bill with a simple majority, the bill can't add to the deficit after 10 years. The bill needs to be budget neutral by year 11.
Experts at the major think tanks, including the Tax Foundation, project deficits in 2028 from the bill, a red flag that could sink the legislation. The Congressional Budget Office and Joint Committee on Taxation have not said what would happen in 2028, but JCT currently estimates rising deficits in 2027 from the House plan, a likely sign that the deficits would keep rising in 2028.