WASHINGTON - For months, Treasury Secretary Steven Mnuchin has said that Republican tax plan won't add a penny to the debt, pledging that more than 100 people in his agency were "working around the clock" to calculate how much additional growth would come from the plan. On Monday, the U.S. Treasury Department released the fruit of those efforts: a 1-page document Monday asserting the $1.5 trillion plan will generate enough more than enough to pay for itself.
It relies on two big - and controversial - assumptions: That the tax plan will generate economic activity well in excess of what independent analysts project. And that the rest of the administration's economic agenda, including regulatory reform, infrastructure spending and an overhaul of the welfare system, will take effect.
In the one-page analysis, Treasury's Office of Tax Policy says the U.S. economy will jump from 2.2 percent annual growth to 2.9 percent annual growth every year for the next 10 years. (The nonpartisan Congressional Budget Office is currently projecting just 1.9 percent growth a year).
Treasury says half of the increased growth would come from the massive cuts to business taxes. The tax plan proposes cutting the corporate rate from 35 percent to 20 percent.
The office attributes the rest of the increased growth to multiple factors, including more infrastructure spending, welfare reform, an overhaul of the individual tax code, and lower rates for business owners who pay their income taxes through the individual code. As the one-pager says, "We expect the other half to come from changes to pass-through taxation and individual tax reform, as well as a combination of regulatory reform, infrastructure development and welfare reform as proposed in the [Trump] Administration's Fiscal Year 2018 budget."
Treasury estimates that, all told, the tax code changes and other policy efforts would lift economic growth so much that it would generate $1.8 trillion in new revenue over 10 years, as a bigger economy leads to bigger tax bills.
It is an analysis far different than other groups.
A recent analysis by the Joint Committee on Taxation (JCT), Congress' nonpartisan scorekeeper, predicted the Senate tax bill would add about 0.1 percent more a year to growth over the next decade, far smaller than what Treasury says. JCT took into account the economic effects of the tax cuts to individual and business taxes, but not other policy changes advocated by the administration like welfare reform.
The JCT says the bill's total cost would remain $1 trillion after taking into effect growth effects.
Many economists and tax policy experts slammed the brief memo from Treasury as half-baked. There was no supporting documentation with the one-page statement, making it impossible for independent economists to be able to re-create Treasury's work. Independent analysts have forecast the bill would add $500 billion to nearly $2 trillion to the debt.
"Treasury has released a one-page which will be used by tax cut advocates to claim that the tax cut pays for itself. It's a joke and no substitute for the career staff running the full macro model they have to analyze effects," New York University tax law professor David Kamin tweeted.
Some former Treasury staff in the Obama administration don't think Treasury ran a model at all. They note that the 2.9 percent growth estimate is what Trump's budget assumed in the spring.
"First, the staff DID NOT model the tax reform. Paper simply assumes a growth rate--the crazily optimistic one from the budget. And says that, yes, ~3 percent ann(ual) growth would more than pay for tax cuts," David Kamin posted on Twitter.
America's leading think tanks that analyze tax and budget policies have all released detailed analyses showing that the tax bill would not fully pay for itself.
In a new analysis of the Senate GOP tax bill that was also released Monday, the Tax Policy Center found the bill would still cost $1.5 trillion, even after taking into account economic growth. The Penn-Wharton Budget Model predicts the tax bill would still add $1.5 trillion to $1.8 trillion to the national debt after factoring in growth.
The Tax Foundation, which supports the GOP tax plan, says cost about $500 billion. Treasury is by far the most optimistic of all.
"Even with assumptions favorable to economic growth, the Senate [bill] still increases debt by over $1.5 trillion dollars over the next decade," says economist Kent Smetters, director of the Penn Wharton Budget Model.
Senior administration officials said that different economists could come to different conclusions, but they wanted to offer some transparency into their perspective. The one-page brief states, "We acknowledge that some economists predict different growth rates."
One Republican senator - Sen. Bob Corker, R-Tenn. - voted against the tax bill because of concerns about how much money it adds to the deficit. The White House has tried to assure other GOP lawmakers that the Joint Committee on Taxation is wrong and the bill would not increase the debt.
Senate Minority Leader Charles Schumer, D-N.Y., called the one-pager "fake math" that shows Republicans are "grasping at straws."
taxes-treasury
Sports on 12/12/2017