- The Treasury Department released a report Monday arguing that Republicans’ economic agenda would eventually pay for the cost of the GOP tax bill.
- The report made large assumptions about economic growth, leading many economic and tax experts to question its validity.
The Treasury Department on Monday released a one-page report arguing that the Republican tax bill’s cost would eventually be paid for by economic growth, but it triggered backlash from experts who said it contained serious errors and significant assumptions.
The report from the Treasury concluded that the GOP tax bill, the Tax Cuts and Jobs Act, would be paid for by increased economic growth that would result from the bill’s policy changes and additional actions proposed by the Trump administration.
The one-page analysis claims the tax bill and other economic policies would raise $US1.8 trillion in revenue. That would make up for the $US1.5 trillion that the tax legislation is projected to add to the federal deficit.
The analysis comes with several caveats
The Treasury report assumes that gross domestic product, the most widely used measure of a country’s economy, would increase by an average of 2.9% annually in the US over the next 10 years.
That rate, taken from President Donald Trump’s proposed budget, is much greater than the 2.2% annual GDP growth rate the Treasury’s Office of Tax Policy expected over that period before Trump took office. The growth rate from the budget assumes not just that the tax bill and some other Trump administration proposals will pass, but that the policies will add nearly a percentage point to the US’s annual GDP growth.
“Treasury expects approximately half of this 0.7% increase in growth to come from changes to corporate taxation,” the report said. “We expect the other half to come from changes to pass-through taxation and individual tax reform, as well as from a combination of regulatory reform, infrastructure development, and welfare reform as proposed in the Administration’s Fiscal Year 2018 budget.”
The report does not back up the Trump administration claim that the tax bill would “pay for itself.” Rather, it says the assumed growth rate from a budget that includes boosts from a yet-to-be-released infrastructure package and other policy changes would be enough to make up the lost revenue from the tax bill.
Scott Greenberg, a senior analyst at the conservative-leaning Tax Foundation, compared the assumption of additional policy changes to a manufacturing company.
He tweeted: “Manufacturing company: Hey look, this new plant in Tennessee will definitely turn a profit, if we count the revenues we assume we’re going to get from our factory in Kentucky, which we haven’t built yet.”
It conflicts with most independent analyses
The Treasury report conflicts with analyses from nearly every independent, nonpartisan group as well as from the Joint Committee on Taxation, which operates as an official scorekeeper for Congress.
An analysis from the University of Pennsylvania’s Penn-Wharton Budget Model released Monday said the Senate version of the tax bill would boost GDP by only about half a percentage point to 1 percentage point total after 10 years. The model said the bill would add $US1.5 trillion to $US1.8 trillion in new deficits over that time frame “even under assumptions favourable to economic growth.”
The JCT estimated that he tax bill would boost the economy by eight-tenths of a percentage point over the first 10 years after the bill was passed and generate $US1 trillion in new deficits even when factoring in economic growth.
“Treasury has released a one pager which will be used by tax cut advocates to claim that the tax cut pays for itself,” tweeted David Kamin, a New York University law professor and former economic adviser to President Barack Obama. “It’s a joke and no substitute for the career staff running the full macro model they have to analyse effects.”
An ’embarrassing joke’
Jacob Leibenluft, a senior adviser at the left-leaning Center on Budget and Policy Priorities and former deputy director of the National Economic Council, had a similar reaction.
“This document is a tacit admission that Treasury’s career tax experts have no analysis showing the tax plan pays for itself – but written in a way to confuse people who can’t or won’t read between the lines,” he tweeted.
Jason Furman, a Harvard Kennedy professor who previously served as the Council of Economic Advisors chairman, called the report an “embarrassing joke.”
Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, tweeted “no one should believe this study.”
Senate Minority Leader Chuck Schumer also blasted the report in a statement, saying it used “fake maths.”
“The latest Treasury ‘analysis’ is nothing more than one page of fake maths,” Schumer said. “It’s clear the White House and Republicans are grasping at straws to prove the unprovable and garner votes for a bill that nearly every single independent analysis has concluded will blow up the deficit and generate almost no additional economic activity to make up for it.”
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