Proposed Tax Cut Plan Won’t ‘Pay For Itself’

The Donald Trump administration is relying on a controversial theory to pay for their proposed pro-corporate and pro-wealthy tax cut plan. Treasury Secretary Steven Mnuchin said, “the plan will pay for itself with growth.” What’s been called “biggest tax cut in history”, the administration suggests, will supposedly unleash growth to be make up for the revenue lost by drastic tax cuts, and the decision not to reduce defense or retirement spending (although many cuts adversely impact the elderly, particularly the elderly poor).

Problems With THe Plan

Mnuchin and others suggest that growth from the proposed tax cuts will be close to $2 trillion over a ten year period. However,the Tax Policy Center review of the plan shows the $2 trillion figures falls well short of the loss of federal revenue over the same time frame:

…His proposal would cut taxes at all income levels, although the largest benefits, in dollar and percentage terms, would go to the highest-income households. Federal revenues would fall by $6.2 trillion over the first decade before accounting for added interest costs. Including interest costs, the federal debt would rise by $7.2 trillion over the first decade and by $20.9 trillion by 2036.

The conservative-leaning Tax Foundation also predicts the plan would hurt federal revenue and mostly benefit the top 1% wage earning taxpayers:

  • According to the Tax Foundation’s Taxes and Growth Model, the plan would reduce federal revenue by between $4.4 trillion and $5.9 trillion on a static basis. The amount depends on the nature of a key business policy provision.
  • After accounting for the larger economy and the broader tax base, the plan would reduce revenues by between $2.6 trillion and $3.9 trillion after accounting for the larger economy, depending on the nature of a key policy provision.
  • On a static basis, the plan would lead to at least 0.8 percent higher after-tax income for all taxpayer quintiles. The plan would lead to at least 10.2 percent higher incomes for the top 1 percent of taxpayers or as much as 16.0 percent higher, depending on the nature of a key business policy provision.

A Glaring Error

Jonathan Chait of the Daily Intelligencer points out the extreme basis of the mistakes made by the assumptions of President Trump’stax proposal:

One of the ways Donald Trump’s budget claims to balance the budget over a decade, without cutting defense or retirement spending, is to assume a $2 trillion increase in revenue through economic growth. This is the magic of the still-to-be-designed Trump tax cuts. But wait — if you recall, the magic of the Trump tax cuts is also supposed to pay for the Trump tax cuts. So the $2 trillion is a double-counting error.

…But then the budget assumes $2 trillion in higher revenue from growth in order to achieve balance after ten years. So the $2 trillion from higher growth is a double-count. It pays for the Trump cuts, and then it pays again for balancing the budget. Or, alternatively, Trump could be assuming that his tax cuts will not only pay for themselves but generate $2 trillion in higher revenue. But Trump has not claimed his tax cuts will recoup more than 100 percent of their lost revenue, so it’s simply an embarrassing mistake.

Without further explanation into the goals of the Trump tax plan, the long term effects on the economy could be detrimental, if it were to pass both chambers of Congress.

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