U.S. Treasury report defends tax reform plan, says GDP growth must near 3%, cut welfare, entitlement programs

by Wesley Brown ([email protected]) 541 views 

The U.S. Department of the Treasury on Monday (Dec. 11) released a one-page analysis defending the Senate’s recently passed tax cut bill, saying the plan would add $1.8 trillion of additional revenue to U.S. budget coffers over the next decade if the economy grows at an annual rate of nearly 3%.

Under both the House and Senate tax cut bills, the top corporate tax rate would decline from 35% to 20% but would be implemented at separate times and made permanent. And although Republicans have pitched the both versions of the bill as a middle -class tax cut, those tax breaks would impact about two-thirds of working families and would raise taxes on the remainder, expired in 2025.

The summary of the U.S. Treasury’s Office of Tax Policy (OTP) also reveals that the GOP tax plan pushed and supported by President Donald Trump won’t come close to paying for itself unless Congress passes additional legislation that wrings savings from so-called entitlement programs such as welfare, Medicaid and Medicare and adopts new legislation that helps small business and boosts infrastructure investment.

“We are pleased to release an analysis demonstrating the revenue impact of the (Trump) administration’s economic agenda,” U.S. Treasury Secretary Steven Mnuchin said in a statement. “The Administration has been focused on tax reform and broader economic policies to stimulate growth, which will generate significant long-term revenue for the government.”

Mnuchin released the one-page summary after Senate Democrats in recent days openly criticized the Trump administration for its lack of in-depth analysis on the $1.8 trillion of the GOP-led tax reform plan tax after it was hastily approved in the wee hours of a Saturday morning vote on Dec. 2.

Nearly two weeks ago, U.S. Treasury Department Inspector General Eric Thorson announced he had initiated an internal probe on why Mnuchin and the department’s OTP had not yet released a formal analysis of the economic impact of the tax cut bill before it came to the Senate floor for a full vote.

According to the details of one-page analysis, the Treasury Department’s summary mirrors the Joint Committee on Taxation’s (JCT) scoring on the Senate tax reform plan that projects U.S. economic growth would increase by an average of 0.8% over the next 10 years and reduce the cost of the bill by $408 billion.

“Adding this $408 billion to the static score leads to a change in total projected receipts under JCT’s assumptions of approximately $1 trillion (deficit) on a current law basis,” the Treasury Department stated. “OTP has modeled the revenue impact of higher growth effects, using the Administration projections of approximately a 2.9% real GDP growth rate over 10 years contained in the Administration’s Fiscal Year 2018 budget.”

The Treasury Department’s Office of Tax Policy predicts that nearly half of the expected 0.7% in new growth will come from changes to corporate taxation. U.S. Bureau of Economic Analysis’ data shows the nation’s economy has only seen lukewarm annual Gross Domestic Growth (GDP) of 2.2% over the past decade, well below the economic boon predicted by the Mnuchin and the Trump administration through 2028.

“We expect the other half to come from changes to pass-through taxation and individual tax reform, as well as from a combination of regulatory reform, infrastructure development, and welfare reform as proposed in the Administration’s Fiscal Year 2018 budget,” Treasury officials said. “This 0.7% increase in the annual real growth rate results in an increase in tax revenues during the 10-year period of approximately $1.8 trillion.”

But the Committee for a Responsible Federal Budget (CRFB), a bipartisan Washington, D.C.-based public policy group that focuses on federal budget and fiscal issues, said a $1.5 trillion tax cut over 10 years would result in debt growing even faster than it is already expected to grow. Under current law, debt is projected to grow from a post-World War II era high of 77% of GDP to 91% by 2027.

Under the GOP tax cut plan, which would cost about $1.8 trillion after interest costs, debt would instead reach 97% of GDP in 2027 and equal the size of the economy by 2028, four years earlier than current law, said CRFB President Maya MacGuineas.

“This Treasury report makes a mockery of dynamic scoring and analysis, which is meant to help policymakers understand how their choices will affect the size of the economy,” MacGuineas said. “In this analysis, the Treasury Department doesn’t estimate the tax bill will help get us to 2.9% sustained growth, it just assumes it. Rather than modeling the macroeconomic effects of the Senate tax bill, they simply take the same fantastical assumptions they made in the President’s budget and apply them to the tax bill.”

Like most economic forecasts, Treasury Department officials provided some leeway for its newly-released analysis, stating that “some economic predict different growth rates.” If growth does not measure up to the department’s rosier views, OTP projects that at approximately 0.35% of incremental annual GDP growth that would generate approximately $1 trillion of incremental revenue.

To date, neither JCT nor the U.S. Treasury has released a score showing increased tax receipts from the House tax plan.

”(W)e would not expect the results to be materially different,” Treasury Department officials said.

Since the U.S. House and Senate passed different versions of President’s Trump tax reform overhaul legislation, both bills are now in a conference committee where selected party leaders are negotiating differences. Under the U.S. Constitution, the House and Senate must pass the same version before it is sent to the president’s desk and signed into law.

After the tax reform bill was approved by the Senate over a week ago by vote of 51-49, Arkansas Republican Sens. John Boozman and Tom Cotton applauded President Trump’s first major legislative victory, saying the Senate bill would bring tax relief to working families across the state. In a response to a Talk Business & Politics inquiry, Boozman spokeswoman Sara Lasure said the Senate’s plan to overhaul the tax system will increase growth at a faster rate than the tepid economic expansion under the previous administration.

“Under President Obama, we had historically slow growth, largely due to his administration’s excessive regulations. President Trump and Congress have worked to rein in that regulatory abuse, improving consumer confidence and jumpstarting the economy, which is reflected in the 3.3% growth in GDP,” Lasure said. “Sen. Boozman believes we can continue this momentum and not only maintain but exceed the administration’s projections.”

Cotton, who sponsored a proposal to repeal the Affordable Care Act’s individual mandate that was inserted in the bill in last-hour negotiations, said after the vote the Senate bill will help Arkansans keep more of their hard-earned money and businesses create more jobs. Cotton’s office did not immediately respond to comments for this story.