Déjà vu: The ‘trickle down economics’ of GOP tax plan don’t add up
Reporter, Think Progress
The House and Senate tax plans, rolled out in October and earlier in November, vary slightly in their details, but in general, they revolve around the same central goal: to permanently reduce the corporate tax rate from 35 to 20 percent.
That goal won’t come cheap.
According to the Congressional Budget Office, cutting the tax rate for corporations to 20 percent would cost the federal government up to $1.5 trillion dollars. White House officials claim this is nothing to worry about, because these tax cuts will eventually pay for themselves through economic growth.
“We think we can drive a lot of business back to America, we can drive jobs back to America, we can make ourselves very competitive,” White House economic adviser Gary Cohn told CNBC in late September. “We think we can pay for the entire tax cut through growth over the cycle.”
Treasury Secretary Steve Mnuchin also recently argued that the tax plan would “not only…pay for itself, but it will pay down debt” as well.
The latest analysis from the non-partisan Tax Policy Center, however, finds that the House bill will not spur enough economic growth to pay for itself. GDP would increase over the next two decades, but only by 0.6 percent in 2018 and 0.2 percent in 2037.
In total, the House bill would yield around $169 billion in additional tax revenue, nowhere near enough to cover the roughly $1.5 trillion in revenue loss from a corporate tax cut.
“The increase in output would boost revenues, offsetting roughly a tenth of the revenue loss projected under the legislation without accounting for macroeconomic feedbacks,” the Tax Policy Center explained.
Republicans will likely argue that the benefits of corporate tax cuts will make their way to American workers in the form of more jobs and higher wages, eventually balancing the budget. The overwhelming consensus among economists, however, is that this brand of “trickle down economics” doesn’t work. The newest analysis from the Tax Policy Center also backs this up:
Although the legislation would increase incentives to save and invest, it would also substantially increase budget deficits unless offset by spending cuts. Higher deficits would push up interest rates, which would tend to discourage investment.
Republicans and the Trump administration have traditionally bucked any analysis that runs counter to their narrative. Back in September, the U.S. Treasury Department removed an economic study from its website that found workers do not benefit from corporate tax cuts. Officials reasoned that the study didn’t “represent [their] current thinking and analysis.”
This new Tax Policy Center analysis will likely make cause some hesitation among deficit hawks in Congress. Both Sen. Bob Corker (R-TN) and Sen. Jeff Flake (R-AZ) have already expressed concerns over how much the plan will increase the deficit.
Speaking with the New York Times last week, Corker stated simply, “If I believe it’s going to add to the deficit, I’m not going to vote for it.”
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Reposted from Think Progress
