Here’s Why Trump’s Tax Cuts Can’t Pay for Themselves
Taxes

Here’s Why Trump’s Tax Cuts Can’t Pay for Themselves

BRENDAN MCDERMID

Treasury Secretary Steven Mnuchin claims that the Trump tax plan will more than pay for itself, with the growth it unleashes helping to reduce the national debt by $1 trillion after 10 years. And while some other officials have shied away from such claims in recent days, there have been plenty of supply-side advocates making similar arguments. At an event held by the Heritage Foundation Tuesday, Rep. Jeff Duncan (R-SC), a member of the conservative Republican Study Committee, held up a hand-drawn image of the Laffer curve as he expressed his belief that that cuts will pay for themselves through economic growth, just as Art Laffer promised many years ago.

A new paper from the deficit hawks at the Committee for a Responsible Federal Budget takes on such claims about the wondrous revenue-boosting benefits of tax cuts and points to some of the abundant evidence that the theory has failed to live up to its claims. “While well-designed tax cuts may grow the economy (often not as much as tax reform), there is no case in which they could grow the economy enough to be self-financing,” the authors write. “At best, tax cuts can finance a fraction of their costs through faster growth – and maybe not even that.”

Their key points:

  • There is no theoretical basis to suggest tax cuts could be self-financing. To do that, the economy would need to grow by $5 to $6 for every $1 of tax cuts.
  • There is broad consensus among economic models that future tax cuts won’t pay for themselves. Some models find tax cuts would be partially self-financing, while others find the economic feedback would actually increase the deficit effect of tax cuts.
  • Past tax cuts in 1981 and the early 2000s have led to widening budget deficits and lower revenue, not the reverse as some claim.

Disclosure: The Committee for a Responsible Federal Budget receives funding from the Peter G. Peterson Foundation. The Fiscal Times is separately funded by Peter. G. Peterson, and is editorially independent.

TOP READS FROM THE FISCAL TIMES