Fiscal watchdogs said Wednesday that President Trump’s tax reform plan is likely to add trillions in deficits and relies on overly rosy projections of economic growth to minimize its budget impact.
The kindest evaluation of the GOP’s proposal from deficit-hawk groups is that the framework doesn’t spell out how, or whether, it will keep from adding to Washington’s annual red ink. The current national debt has topped $20 trillion.
“Tax reform that’s unpaid for would actually be anti-growth, because more debt hurts our economy,” said Michael Peterson, president and CEO of the Peter G. Peterson Foundation. “Our leaders should provide more details on the fundamental question of fiscal responsibility.”
The bipartisan Committee for a Responsible Federal Budget said its initial analysis shows that the plan would add about $2.2 trillion to deficits over a decade — cutting taxes by $5.8 trillion and adding new tax revenue of $3.6 trillion through “base broadening.”
“Tax cuts shouldn’t be handed out like Halloween candy,” said the group’s president, Maya MacGuineas. “Deficit-financed tax cuts are a recipe for a short-term economic sugar high followed by sluggish long-term growth.”
Robert Bixby, executive director of The Concord Coalition, said paying for the tax cuts is “the critical question.”
“Elected officials are touting all the goodies in terms of tax cuts and lower rates while leaving the tradeoffs hidden and which taxpayers would be affected unspecified,” Mr. Bixby said. “That’s hardly a model for legislative responsibility.”
Mr. Trump didn’t address deficits in a speech about the plan in Indiana Wednesday, but White House officials have said deficits will be held in check by strong economic growth fueled by the tax cuts. It’s similar to former Vice President Dick Cheney’s refrain that tax cuts “pay for themselves,” but fiscal analysts aren’t buying it.
“Relying on unreliable projections of economic growth may make reform appear responsible, but it’s avoiding the tough decisions,” Mr. Peterson said. “We all want higher economic growth, but the truth is that growth is hard to predict, let alone control with legislation. Banking on rosy projections of hypothetically higher growth is setting voters, and the economy, up for disappointment.”
Mr. Trump is banking on annual growth of at least 3 percent, which the U.S. hasn’t attained in more than a decade. Second-quarter growth did hit 3 percent, although the president said third-quarter growth could be hurt from the disruptions and damage caused by a series of powerful hurricanes.
The Concord Coalition said Congress and the president “should not indulge in the rosy fiction that tax cuts pay for themselves through higher economic growth.”
“Doing so could dramatically increase the fiscal crunch in the years ahead,” the group said. “While deficit-financed tax cuts can sometimes be justified to help the economy through a recession, that is hardly the case today.”
The liberal Center on Budget and Policy Priorities said the tax cuts will end up hurting mostly middle-class Americans by putting pressure on Congress to cut spending on programs to offset revenue losses from the tax relief.
“The resulting increase in deficits and debt would raise the pressure for cuts in programs that help low- and middle-income people or that produce long-term economic benefits,” the group said. “Most Americans could ultimately lose more from the program cuts than they would gain from the tax cuts.”
The plan doesn’t touch two of the biggest and most popular “tax expenditures” — deductions for mortgage interest and charitable contributions. Leaving those features in place while increasing the standard deduction “would severely limit any potential revenue gains,” the Concord Coalition said.
Budget analysts say responsible tax reform is needed because the current system is unfair, anti-competitive and too complex.
“Tax reform remains one of the most important national objectives,” Ms. MacGuineas said. “Fiscally responsible tax reform would not only improve simplicity and fairness, but can actually grow the economy and help to improve the dangerous fiscal situation we face. If we end up taking the easy way out with budget-busting tax cuts, all we’ll really end up with is a massive tax bill for future generations.”
• Dave Boyer can be reached at firstname.lastname@example.org.
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