- Treasury Secretary Steven Mnuchin and others have argued that the GOP tax plan will pay for itself.
- A new analysis by the University of Pennsylvania’s Wharton School of Business pokes holes in that line of argument.
For months, Treasury Secretary Steven Mnuchin has said the GOP’s tax code overhaul would pay for itself by leading to larger economic growth. An analysis released Monday pokes holes in that line of argument.
“Not only will this tax plan pay for itself, but it will pay down debt,” Mnuchin said in September.
Mnuchin has argued that economic growth from the tax plan will end up increasing tax revenue despite lower rates, due to larger economic investment from businesses.
“In our models, we believe there will be $US2.5 trillion of growth,” Mnuchin said. “And we’re happy to go through the numbers. We’re happy to give the details. We want full transparency to the American public. But the important issue is, if we increase GDP by 30 or 40 basis points, this plan is break-even.”
But a new analysis from University of Pennsylvania’s Wharton School, however, suggests Mnuchin’s assumptions are significantly off.
The school used the Penn-Wharton Budget Model to analyse the revenue impact of the House’s most-recent version of the Tax Cuts and Jobs Act, which was approved by the House Ways and Means Committee on Thursday and is set for a vote by the full House this week.
According to the model, even with a high amount of economic growth, the federal deficit would increase by $US1.5 trillion over the plan’s first 10 years. Looking out further, the legislation would cause a $US3.6 trillion shortfall in federal revenue.
There is some dispute over the exact amount of economic growth that would come from the bill. The conservative-leaning Tax Foundation, a conservative-leaning group that has a more aggressive model for economic growth, found that the House bill would only add about $US989 billion to the federal deficit over 10 years.
The Penn model assumes that the House’s TCJA would boost US GDP by 0.8% in the long-term, while the the Tax Foundation estimates a 3.6% GDP boost.
Even with the bigger estimate of economic benefits, however, it still falls well short of “paying for itself.”
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