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Zach Halaschak


NextImg:Will the GOP tax cut pay for itself? - Washington Examiner

White House officials are getting pushback from budget experts for their claim that the $4 trillion tax-cut and spending bill being advanced by Republicans will not add to the deficit because it will stoke economic growth.

The skepticism, even among many tax-cut proponents, about the fiscal effects of the legislation is a significant obstacle to passage of the legislation.

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The Congressional Budget Office, Congress’s in-house budget scorekeeper, estimated that the tax cuts alone would add $3.8 trillion to deficits over the next decade.

White House officials have argued that the bill will supercharge growth and make up for those fiscal losses.

White House press secretary Karoline Leavitt claimed Monday that the legislation “does not add to the deficit,” and would rather save $1.6 trillion.

But some budget experts say not so fast.

“I would disagree with anyone who says that this bill does not add to the deficit,” Tax Foundation CEO and President Daniel Bunn told the Washington Examiner.

Bunn noted that his group’s modeling found that, even after accounting for economic growth, the tax parts of the Republican reconciliation legislation would cost the U.S. some $3.3 trillion in revenue over the next decade. Without accounting for growth, the group pegs the deficit hit as even higher at over $4 trillion.

But the White House Council of Economic Advisers argues that extending the 2017 Tax Cuts and Jobs Act “along with other administration policies” will “produce healthy revenues because of a growing economy.”

It released a new analysis this week finding that the legislation Republicans are crafting would lead to a boom in business investment and drive up household earnings.

“And I think that lots of people consistently underestimate that, and are consistently wrong,” CEA Chairman Stephen Miran told the New York Times. “There was no evidence that there was a long-run decline in tax revenues as a result of TCJA — the president’s tax cuts. Growing the economy is one of the best ways to grow revenues, and that was the experience with the president’s first tax cuts.”

The general logic for the CEA’s claims is that the tax cuts under consideration would increase the reward to businesses for investing and to households for increasing labor. Economists generally agree that lower effective tax rates can spur greater economic activity. The question is whether the revenue “feedback” from greater commercial activity would offset the foregone taxes.

Some fiscal conservatives are not buying that it would.

Perhaps the most resolute of them is Rep. Thomas Massie (R-KY). Sporting a digital pin on his suit counting the national debt, he told the Washington Examiner on Tuesday that the numbers just do not add up.

“Well, they should show their homework,” Massie said. “The thing is, in the next five years, the impact on the deficit is going to be bad, and there’s no way you can look at the numbers and say that it’s not going to add to the deficit the next five years.”

Maya MacGuineas is president of the Committee for a Responsible Federal Budget, a group that advocates smaller federal deficits. She told the Washington Examiner that White House claims regarding the legislation’s deficit effects are a “complete outlier of every other outside organization.”

“There is nobody, including the most kind of aggressive and generous modelers, who are saying that, not even close,” MacGuineas said.

According to the Penn Wharton Budget Model, a group housed at the University of Pennsylvania’s business school that analyzes the fiscal effects of public policies, the economic growth from the legislation also does not outpace the deficit hit.

“The actual savings from economic growth do not appear until 2033 and 2034 and are not enough to overcome higher costs in earlier years in the 10-year budget window,” the group said in its report.

One of the reasons that budget experts argue that the reconciliation bill will not supercharge growth to the same degree that the 2017 tax cuts did is that this legislation, for the most part, merely extends those existing provisions.

MacGuineas pointed out that some pro-growth components of TCJA were already made permanent, so they will not be directly affected by the current legislation. For instance, a big driver of growth was lowering the corporate tax rate from 35% to 21% in 2017, a policy that is permanent.

Still, if the reconciliation legislation is not passed, it could represent a major hit to growth, as most people would see their taxes go up.

Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, told the Washington Examiner that some of the tax provisions in the latest bill are not necessarily pro-growth but “special handouts” to certain groups of taxpayers.

Some of those provisions are policies that Trump advocated on the campaign trail, such as exempting taxes on tips and cutting taxes on overtime income. While those tax breaks would put money in the pockets of workers, they would not be expected to add significantly to overall commerce. They would also likely create new economic distortions, such as businesses trying to shift income from wages to tips. The added Trump tax breaks represent a policy reversal from the long-sought Republican goal of broadening the tax base while lowering overall rates.

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The skepticism among budget experts about the reconciliation plan’s deficit effects is also captured by the recent move by Moody’s Ratings Service to downgrade the country’s credit rating from the triple-A category to double-A.

The rating was lowered due to an “increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” according to the rating service.