- The Joint Committee on Taxation released an analysis of Senate Republican tax bill’s economic impact.
- The JCT estimated the bill would increase US GDP by 0.8% above the current baseline over the first 10 years the bill is enacted.
- The JCT estimated the bill would add roughly $US1 trillion to the deficit over 10 years even when factoring in additional revenue from economic growth.
The Joint Committee on Taxation released an analysis of the Senate Republican tax bill on Thursday that showed it would increase the federal deficit and would fall short of “paying for itself,” as Republican leaders have suggested.
The JCT, which acts as the official congressional scorekeeper, released the analysis with just hours to go before a possible final vote on the bill, which is moving through the Senate with lightning speed.
The JCT found it would increase US GDP by 0.8% over its first 10 years. It said economic growth would come from increased incomes to Americans and a boost in business investment.
“The projected increase in GDP during the budget window results both from an increase in labour supply, in response to the reduction in effective marginal tax rates on wages, and from an increase in investment in response to the reduction in the after-tax cost of capital,” the report said.
But that boost is less than the additional 3% to 5% GDP that was expected from conservative economists, including the White House Council of Economic Advisers.
On an annual basis, advocates of the tax plan said that the bill could generate 0.4 percentage points in GDP growth per year. Scott Greenberg, a senior analyst for the Tax Foundation, estimated that the JCT’s growth projection worked out to roughly a 0.15 percentage point boost. Jason Furman, the former Chair of the Council of Economic Advisors under President Obama,estimated a 0.08-point annual GDP boost.
The committee also said the bill would increase the deficit by $US956 billion over 10 years even when factoring increased tax revenue due to economic growth. Adding in the cost of servicing the increased debt, the bill would add just over $US1 trillion in additional debt compared to the current baseline, the analysis said.
That analysis runs counter to statements from Treasury Secretary Steven Mnuchin, who has argued that the tax bill would “pay for itself.” And Senate Majority Leader Mitch McConnell said as recently as late last month that the bill would be revenue neutral.
Julia Lawless, a spokesman for the Senate Finance Committee, called the JCT analysis “incomplete.” Other Republican lawmakers also criticised the JCT, saying that their projections were flawed.
On Wednesday, Senate Finance Chair Orrin Hatch cited JCT data in his defence of the bill.
The projected impact on the deficit and debt could draw concern from some Republican senators who have expressed qualms during the process.
The JCT also determined that outside of the first 10 years, the economic boost and the increased revenue from such a jump would depreciate after the first 10 years.
“We expect that both an increase in GDP and resulting additional revenues would continue in the second decade after enactment, although at a lower level, as many of the provisions that are expected to increase GDP within the budget window expire before the second decade,” the JCT report said.
Part of the reason that the economic growth would be muted, according to the report, is that the Federal Reserve would likely offset the stimulus from the tax cuts with interest rate hikes. Since the economy is already near full employment, the Fed would assume that increased inflation would need to be offset by rate hikes.
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