Treasury Says GOP Economic Agenda Would Pay for Tax Cuts -- 2nd Update

By FeaturesDow Jones Newswires

If the U.S. economy achieves the rapid growth the Trump administration says is possible under its economic policies, that expansion will generate enough money to pay for more than $1.5 trillion in tax cuts, according to a one-page Treasury Department memo released Monday.

The memo didn't analyze the economic effects of the tax plan.

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Instead, it started with the administration's assumption of a steady 2.9% growth rate, from the president's budget released in May. Treasury's Office of Tax Policy calculated that such growth -- which in the budget depended on a tax plan along with a range of other fiscal policy changes -- would yield additional tax revenue.

The missing link is how much growth the latest tax plan itself might cause, and Treasury's tax experts didn't assess that claim in the document.

"That is not a particularly useful or meaningful exercise," said Scott Greenberg, a senior analyst at the right-leaning Tax Foundation.

In contrast, the Joint Committee on Taxation, the nonpartisan tax analysts in Congress, said the House and Senate version of the tax bill won't pay for themselves with faster growth and would instead lead to $1 trillion in additional budget deficits over a decade even after assuming economic growth.

Trump administration officials have often said that tax cuts would pay for themselves by spurring economic growth. Treasury Secretary Steven Mnuchin has said the administration would provide detailed analyses of the tax plan's economic effects.

The brief new Treasury document limited itself to detailing how the administration's previous growth estimates would affect revenues.

Half of that pickup in growth would come from changes in business taxation that are now being considered in Congress, a Treasury official said in a briefing on the document. The other half would come from other policies in the tax bill and from other aspects of the Trump administration agenda, such as a rollback of regulation, a welfare overhaul and infrastructure spending, an administration official said.

The administration has yet to detail its welfare and infrastructure plans, which Congress would have to approve.

According to the Treasury Department analysis, revenue flowing from boosted growth as estimated by the White House would bring in an additional $1.8 trillion over 10 years, more than enough to cover the tax plan's expected $1.5 trillion shortfall.

Those growth assumptions far exceed official congressional and outside estimates. The Congressional Budget Office, for example, projected the economy would grow at a 1.9% annual rate in the coming years, and the Federal Reserve projected 1.8% growth over the long run.

Administration officials said at the time of the budget's release that the Republican tax plan, which had not been detailed by the White House or Congress, wouldn't add to the deficit.

"It would be paid for with economic growth and base broadening," Secretary Steven Mnuchin told lawmakers at a May budget hearing. "When we come out with all the details, there will be full transparency."

Officials said Monday they expect U.S. growth to be even higher than 2.9% and called that estimate "very reasonable."

Mechanically, that growth would produce enough to additional tax revenue to pay for the tax cut with $300 billion left over. That comparison ignores that proposed tax cuts in the Senate's bill largely expire for individuals after 2025. Keeping those tax cuts in place -- as Republicans say a future Congress will -- would likely consume much if not all of any incremental revenue.

The Joint Committee on Taxation, the official nonpartisan scorekeeper for Congress, estimated the Senate tax plan would increase gross domestic product by a total of 0.8% over the next decade and that the effects would fade over time.

Even after assuming that economic growth, JCT said the Senate tax bill would add $1 trillion to budget deficits over the next decade.

That long-run increase of 0.8% is much more modest than achieving annual increases in the growth rate of 0.7%, which is what the administration says its full economic policy agenda would generate.

Treasury officials emphasized the department, as the agency responsible for collecting revenues, is best positioned to forecast the potential revenue impact of any future tax bill.

The Treasury memo carefully ascribes the growth forecasts to "Treasury" -- which includes political appointees -- while giving the Office of Tax Policy, the nonpolitical staff, credit for the mechanical calculations about what those growth rates would mean for federal revenue.

The tax policy office of the Treasury hasn't released its own economic forecasts for the tax proposals.

"The latest Treasury 'analysis' is nothing more than one page of fake math," said Senate Minority Leader Chuck Schumer (D., N.Y.) "It's clear the White House and Republicans are grasping at straws to prove the unprovable and garner votes for a bill that nearly every single independent analysis has concluded will blow up the deficit and generate almost no additional economic activity to make up for it."

Write to Kate Davidson at kate.davidson@wsj.com and Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

December 11, 2017 17:55 ET (22:55 GMT)