The GOP’s House-passed tax overhaul would result in modest economic growth in the coming years and decades but would recoup only 10 percent of the revenue immediately lost by slashing rates, according to a study released Monday.
The plan would increase economic growth by 0.6 percent in 2018, a level that would drop to 0.3 percent by 2027 and 0.2 percent by 2037, according to the report from the Tax Policy Center.
The House’s plan to cut taxes and allow businesses to immediately write off capital expenses would increase consumer demand and boost investment in the short run, but the effects would be muted because the economy is already at close to full employment, wrote TPC’s Howard Gleckman.
The broader effects on the economy, meanwhile, would reduce revenue losses from the $1.5 trillion plan by about 12 percent over the first decade and 8 percent over the second decade, the report found.
All told, including an anticipated increase in interest rates, the debt would increase $1.5 trillion by 2027 and $3.8 trillion by 2037 under the plan.
“That additional government borrowing would lead to higher interest rates that, in turn, would reduce private investment,” Mr. Gleckman wrote in a blog post accompanying the study. “Over time, investment would fall below levels that would occur without the tax bill.”
Republicans have insisted that growth resulting from their tax-cut package will supercharge the economy to the point where a broader tax base will ultimately reduce deficits long-term, even with an initial hit to federal revenues from the lower rates.
“We’ll create economic growth to pay down the deficit,” Treasury Secretary Steven Mnuchin said on “Fox News Sunday.”
Democrats, though, have said GOP forecasts are overly optimistic and that the price tag for the actual package is likely closer to $2 trillion or higher because of budget gimmicks Republicans are using to comply with Senate rules.