At his Senate Finance Committee confirmation hearing today, Steven Mnuchin, President-elect Trump’s choice to head the Treasury Department, seemed somewhat confused about the Tax Policy Center estimates of the total cost of Trump’s campaign tax plan. When asked whether a plan that would add $7 trillion to the debt over 10 years is “acceptable,” Mnuchin insisted that was not really TPC’s projection.
To clarify: It is indeed TPC’s estimate of Trump’s most recent plan. And that analysis, which was done along with the Penn Wharton budget model, included the effects of the tax cut on economic growth (aka dynamic scoring).
To be more precise, TPC estimated that Trump’s campaign tax plan would reduce federal revenues by $6.2 trillion over 10 years. Including added interest costs and macroeconomic effects, TPC figured it would boost the debt by at least $7 trillion over the first decade and $20.7 trillion over 20 years.
These projections matter in part because Mnuchin said repeatedly today that the Trump tax plan would not add to the debt, after including economic effects. The problem: Unless the tax cuts are offset with spending reductions—which Trump has yet to specify—increased government borrowing would drive up interest rates. They in turn would wash away the economic benefits of the President-elect’s tax cuts.
Indeed, the Penn Wharton and TPC models found that for the first decade, there is effectively no difference between the cost of the Trump tax cuts under traditional scoring or dynamic scoring. In the second 10 years, including the effects of a slowing economy would make the debt look even worse than under traditional scoring.
The newspaper The Hill reported today that the Trump Administration is considering a plan to reduce federal spending by $10.5 trillion over 10 years. If Trump does so, and if Congress approves such deep cuts, estimates of the economic effects of the new president’s overall fiscal plan will change. But, for now, it appears as if the Trump tax plan will add many trillions to the debt over the next 10 years.
