Treasury’s one-page study on the TCJA: Assuming a can opener. Treasury Secretary Steven Mnuchin has been saying for months that the department had a study that showed the tax cuts would more than pay for themselves. He never produced the report and Democrats demanded an investigation. Yesterday, Treasury released a one-page memo that showed the Senate Finance Committee version of the Tax Cuts and Jobs Act would pay for itself…but only if the economy grows at a real rate of 2.9 percent over 10 years and Congress passes (yet-unwritten ) welfare and regulatory reforms and an infrastructure bill. TaxNotes Marty Sullivan explained: “They just ran their revenue model assuming high growth but without telling us where ‘the Administration projections ’ come from.” Treasury’s assumptions of new economic activity are well beyond what independent analysts find. TPC’s Mark Mazur noted, “This is not a serious analytical effort that could withstand peer review.”
Meanwhile, TPC released its dynamic analysis of the Senate TCJA. TPC’s Ben Page explains that the bill would generate little new long-run economic growth. TPC’s new report that takes into account effects on the economy finds that the bill would increase Gross Domestic Product modestly until 2025, and by even less after individual income tax cuts expire that year. It would barely change the size of the economy in 2027 or 2037. Its incentives to saving and investment would be largely washed out by higher interest rates caused by increased federal deficits over the first decade. Like the House version of the TCJA, the Senate bill would have little effect on the size of the overall US economy over the medium and long-term. Thus, the TCJA would fall far short of paying for itself.
JCT: House TCJA’s tax cuts don’t pay for themselves, even with economic impacts. The congressional Joint Committee on Taxation issued its report yesterday afternoon. It estimates that even though economic growth would lower the bill’s revenue loss by over $400 billion over 10 years, the bill would still cost $1 trillion over ten years, beyond that estimated revenue growth.
Europe and China have some thoughts on the TCJA. Finance ministers from Germany, France, the United Kingdom, Italy and Spain told Treasury Secretary Mnuchin that TCJA provisions may contravene international treaties on double taxation and hurt trade flows. Meanwhile, Chinese government officials have contingency plans to respond to potential US tax changes including higher interest rates, tighter capital controls, and more frequent currency intervention to keep Chinese money in China.
What can the GOP do about the unpopularity of the TCJA? An anonymous Republican told The Hill that “lowering the corporate rate is never popular.” Other Republicans think the GOP must convince Americans that a lower corporate rate will stimulate the economy. The thing is, as TPC’s Bill Gale has explained, this outcome is far from guaranteed. “There have been huge changes in taxes throughout US history with virtually no observable shift in growth rates.”
Maybe Trump alone can fix it. Tomorrow, the President plans to give a speech promoting the tax bill at the Treasury Department. His audience will include young people and middle-class families. He plans to “show how tax reform will lead to a brighter future for them and their families.”
If you’d like to tell us about a new research paper or have any comments about the Daily Deduction, TPC’s summary of the day’s tax news, write Renu Zaretsky at [email protected]. You can sign up here to receive the Daily Deduction as an email newsletter every weekday morning (Mondays only when Congress is in recess) at 8:00 am.
