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Treasury: 2.9 Percent Economic Growth Would Pay for GOP Tax Cuts

Treasury: 2.9 Percent Economic Growth Would Pay for GOP Tax Cuts

Monday, 11 December 2017 12:48 PM

The tax cuts proposed in the Republican Senate tax bill would pay for themselves over 10 years in combination with President Donald Trump’s other economic policies, according to a one-page analysis released by the U.S. Treasury Department Monday.

Critics said Treasury’s 470-word report -- which didn’t include specific calculations for the effects offered by elements of Trump’s economic agenda such as a regulatory rollback -- lacked rigorous analytical backing. Treasury Secretary Steven Mnuchin has said the tax provisions alone would pay for themselves.

Treasury’s long-awaited tax report says only that the combined impact of Trump’s economic agenda will drive enough growth to pay for the tax cuts. Treasury’s Office of Tax Policy based its growth estimates on the 2018 White House budget -- which contained some different tax provisions from those in the legislation Congress is considering.

For example, the administration based its estimates on tax legislation that would cut the corporate rate to 15 percent and set a top individual rate of 35 percent. The current version of the Senate tax plan would set a 20 percent corporate rate starting on Jan. 1, 2019, and a set a top rate for individuals of 38.5 percent.

A Treasury Department spokesman couldn’t immediately provide a comment about that apparent discrepancy.

Report’s Findings

Regardless, the new analysis found that gross domestic product would increase to an average of 2.9 percent over 10 years, which would lead to $1.8 trillion in new revenue, more than offsetting the tax plan’s almost $1.5 trillion cost. Roughly half of the boost in growth would come from corporate tax cuts, while the other half would come from changes to pass-throughs, individual tax cuts and “a combination of regulatory reform, infrastructure development, and welfare reform as proposed” in the administration’s 2018 budget.

An analysis released by Congress’s official scorekeeper, the Joint Committee on Taxation, previously found that the Senate tax bill would generate enough economic growth to lower its $1.4 trillion revenue cost by only about $458 billion over a decade.

After accounting for interest rates, the growth figure would fall to $407 billion, according to the JCT. That would leave a 10-year revenue loss of roughly $1 trillion. A spokeswoman for the tax-writing Senate Finance Committee criticized the JCT study, which came out just a day before the chamber voted to approve the bill, as “incomplete” because the Senate bill was “evolving.”

Economic Arguments

The bill’s backers, including Mnuchin, have argued the tax plan would pay for itself through robust economic growth resulting from the cuts -- but several analyses have emerged countering that argument.

A report that was also released Monday by the Urban-Brookings Tax Policy Center, an independent policy group, found that after accounting for larger economic effects, the Senate plan would reduce its revenue loss by just about $186 billion over a decade -- leaving almost $1.3 trillion in new deficits over that time.

“We acknowledge that some economists predict different growth rates,” Treasury wrote in its document.

Mnuchin came under fire last month after a media report said Treasury hadn’t completed an analysis of the GOP tax plan that the secretary had been promising for months. The Treasury secretary has said repeatedly that he has more than 100 people at the agency working on economic models that will support his assertions that the proposed tax rewrite would give the middle class a big tax cut and boost the U.S. economy.

‘Cut the Deficit’

“We believe there will be $2 trillion of additional growth,” Mnuchin said Oct. 1 on ABC’s “This Week.” “So under our plan, we believe this will cut the deficit by $1 trillion and that’s what we’re focused on.”

Instead of a full analysis, Mnuchin last month released a letter signed by nine economists, many from past Republican administrations, saying the tax plan will lead to “substantial growth.”

The agency’s inspector general has an open investigation into whether political considerations interfered with Treasury’s analysis. The IG’s office said Monday that the review will continue.

“It would appear that OTP was pressed to validate somehow the Secretary’s position that the tax bill would pay for itself,” said Bill Hoagland, a former Senate Budget Republican staff director and senior vice president at the Bipartisan Policy Center.

Senate Minority Leader Chuck Schumer called Treasury’s analysis “one page of fake math.”

The House Budget Committee’s top Democrat, John Yarmuth, said Treasury appeared to be hiding its actual analysis of the plan.

“Secretary Mnuchin promised for months the Treasury Department would provide a detailed analysis of the Republican tax plan,” he said. “But they are too scared for the American people to see the damage it will cause.” Instead, Treasury released a one-page “analysis” citing the economic growth projections in the President’s Budget, which were based on a far different set of policies than what is included in the GOP tax plan."

Separately, finance ministers from Europe’s five biggest economies warned Mnuchin in a letter that the current tax plan may break international treaties on double taxation, and hurt trade flows.

The plan “may risk having a major distortative impact on international trade,” finance ministers from Germany, France, the U.K., Italy and Spain said in a letter to Mnuchin released Monday.

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A new Treasury Department memo assumes that tax cuts and other Trump administration policies would cause the economy to expand at a 2.9 percent annual pace over 10 years, enough to keep the national debt from rising and allowing Republicans tax cuts to pay for themselves.
tax overhaul, treasury, report
Monday, 11 December 2017 12:48 PM
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