WASHINGTON – Treasury Secretary Steven Mnuchin said Thursday a sweeping GOP tax overhaul would generate more than enough economic growth to offset the cost, pressing the administration's argument that the plan would pay for itself.
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"Not only will this tax plan pay for itself, but it will pay down debt," he said at a conference in Washington, arguing the proposal would fuel stronger growth, causing tax payments to rise and offsetting the revenue lost from lower rates. He also said lower rates would discourage corporate tax avoidance, which would help boost revenue.
Analysts and economists on both sides of the aisle, however, have disagreed over how much growth tax cuts are likely to generate, and said there is no clear evidence that cuts generate enough growth to offset their costs.
Lily Batchelder, a professor of law and public policy at New York University, and former deputy director of the National Economic Council during the Obama administration, said it's "completely implausible" that the plan released Wednesday will pay for itself.
"Obviously we need a lot more details to precisely estimate the cost, both before and after taking into account economic growth," she said, but added, "It is quite clear that this is a very costly plan."
The proposal unveiled Wednesday laid out a range of changes to the tax code, including lower taxes on corporations, incentives for business investment, the end of the estate tax and fewer individual income tax brackets.
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Mr. Mnuchin said he expects the plan would boost gross domestic product growth to an annual rate of 2.9% over the next 10 years, generating an additional $2 trillion of revenue. "We think that's very, very doable," he said.
The nonpartisan Committee for a Responsible Federal Budget estimated the framework calls for about $5.8 trillion in tax cuts over a decade, and includes about $3.6 trillion in revenue-raising provisions, leaving a net cut of $2.2 trillion. Mr. Mnuchin said Thursday the administration disagrees with the CRFB analysis, and argued the proposal would actually boost revenues.
Senate Republicans are eyeing a budget plan that would allow just $1.5 trillion in tax cuts over a decade, which Mr. Mnuchin said is also the administration's objective.
But he argued that any measure of the tax cut should disregard about $500 billion in expired and expiring tax breaks that Congress was going to extend anyway. That would make the total cut smaller, at approximately $1 trillion, he said. A $1 trillion tax cut generating $2 trillion in revenue, would leave an extra $1 trillion to help pay down the debt, Mr. Mnuchin concluded.
The plan released Wednesday offers no concrete details about how officials expect the tax plan will produce higher growth rates. And key pieces of it remain unwritten, including important details about changes to the earned income tax credit, a possible additional top tax rate above 35%, rules to prevent business owners from improperly reclassifying wages as business income and which households pay more and which pay less.
"Without sufficient details on how or even if these tax cuts will be fully paid for, this outline is nothing more than a fiscal fantasy," CRFB President Maya MacGuineas said Wednesday.
Administration officials, including National Economic Council Director Gary Cohn, also characterized the plan as a tax cut for the middle class on Thursday and not a boost for wealthy individuals. "We are doing an awful lot to help hardworking Americans," Mr. Cohn said on CNBC. "I think when people see the final details, they'll be pretty impressed with what we're doing for working Americans."
Mr. Mnuchin reiterated that eliminating deductions for wealthy individuals would offset any reduction in their individual income tax rate. But he conceded that other provisions in the overall plan, including an end to estate taxes, could benefit them.
"We're talking about income taxes," he said at the conference Thursday hosted by the Atlantic and Aspen Institute. "Obviously if we change the estate tax, that has a different distributional [effect]. But it's the president's objective that income taxes will not be a cut on the wealthy."
Mr. Mnuchin promised taxpayers in the lowest income bracket wouldn't see their taxes increase under the GOP plan, which would collapse the seven individual income brackets in the current tax code down to three, bringing the lowest bracket up to 12% from 10%.
Asked how he justified an increase on some of the country's lowest earners, Mr. Mnuchin said taxes for those workers won't increase at all.
"I can assure you there will be nobody who was in the 10% [bracket] who will be paying higher taxes," he said in an interview with "CBS This Morning."
Mr. Mnuchin said the plan will double the standard deduction for those earners, effectively eliminating the lowest bracket.
Approximately 27.3 million people fall into the 10% tax bracket, compared with 42.9 million at 15% bracket -- the largest bracket -- and 35.9 million who pay no income taxes, according to IRS data from 2014, the latest year for which the data is available.
The blueprint released Wednesday didn't include details of specific changes to the earned income tax credit or the child tax credit, which are critical to determining how low- and middle-income families would fare under a GOP tax overhaul.
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(END) Dow Jones Newswires
September 28, 2017 16:31 ET (20:31 GMT)