The tax debate that consumed Congress this week was missing an ingredient Republicans say is essential to any realistic analysis of changes in the tax law: an accounting of the economic growth impacts of an overhaul.
The White House and Republican party leaders say tax cuts will spur economic growth, leading to more household income and corporate profit growth and thus more tax revenue to help pay for the tax cuts themselves. Accounting for this virtuous cycle, known in Washington parlance as dynamic scoring, is key to adding up the budget impacts of any new tax bill, they have argued.
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So far -- with the full House and Senate Finance Committee having passed competing versions of the bill -- neither the White House, U.S. Treasury nor congressional score keepers have produced such estimates. That makes it hard to know the real budget impacts of the plans lawmakers are voting on.
"It is unusual to press so hard to use these scores and then not to have those scores at the time the bill is being considered," said William Hoagland, a former GOP congressional budget aide who is now an analyst at the Bipartisan Policy Center.
Treasury Secretary Steven Mnuchin said Monday the Treasury had completed such an analysis and pledged "complete transparency" in its accounting for the growth benefits of the tax plans. "Our view is that this will pay for itself," he said at The Wall Street Journal's CEO Council this past week.
The Treasury secretary has frequently pointed to a team of 100 analysts at the Treasury who are modeling various estimates. So far, however, no dynamic scoring analysis has been made public.
"You claim you have an analysis you can't show. That's not helpful.... That damages your credibility," said Douglas Holtz-Eakin, a conservative economist and former director of the Congressional Budget Office who is generally supportive of the GOP tax plans. "Show your work if it's supposedly beneficial to your argument."
A Treasury official said the administration "is in the process of developing reports and analyses" that will show how the administration's economic policies, of which the tax cut is a centerpiece, will boost growth. "This analysis will be released in future reports," the official said.
The official also said Mr. Mnuchin was referring this week to "internal work" that had been shared with the White House Council of Economic Advisers and not a separate Treasury report. A CEA spokeswoman declined to comment.
The CEA published a report last month that said corporate tax-code changes along the lines proposed by Republican lawmakers could expand the economy by 3% to 5% over a decade. The report didn't hold that such a growth boost would cover the cost of the tax cut.
When the Trump administration proposed its budget in May, officials didn't include any details on the tax plan, which they said wasn't ready. "We've said this tax plan will be paid for, and we'll go through the details when it comes out," Mr. Mnuchin told lawmakers in June.
The Joint Committee on Taxation, Congress's nonpartisan arbiter of the costs of tax plans, estimates the House bill would lose $1.4 trillion in revenue over 10 years before taking into account the benefits of growth.
A full analysis of the economic effects of the House bill wasn't ready when lawmakers voted on the bill Thursday. Nor was an analysis of the Senate plan available when the Senate Finance Committee approved its bill Thursday.
Dynamic scores take longer to calculate than static ones in part because they must account for the current state of the economy.
A corporate tax cut might have different growth impacts in an economy with high unemployment and low corporate profits, for example, than one in today's environment, where profits are strong, unemployment is low and interest rates are low. In the current environment, the economy might not have as much room to speed up without a risk of overheating.
Outside groups that model various tax plans haven't shown a tax cut can fully offset lost revenue. They have differed over the magnitude of the revenue loss.
The Penn Wharton Budget Model, developed by an economist who helped build the dynamic scoring models used by the Bush Treasury, found the bill would lose around $1.8 trillion over a decade before accounting for the growth benefits. Incorporating the growth boost, the model shows it would reduce federal revenues by anywhere between $1.5 trillion and $1.7 trillion.
The Tax Foundation, a conservative-leaning think tank, estimates that after incorporating the effects of growth, the plan would lose around $1.1 trillion over 10 years.
Phillip Swagel, who served as the U.S. Treasury's top economist from 2006 until 2009 in the George W. Bush administration, said it was"just implausible" that the Trump administration has an analysis that concludes tax cuts will pay for themselves.
Write to Nick Timiraos at email@example.com
(END) Dow Jones Newswires
November 17, 2017 13:01 ET (18:01 GMT)