The Deficits of the Republican Tax Plan

Once upon a time Republicans were mightily concerned about debt and deficits. Since Donald Trump’s election, however, much of that concern has evaporated and the GOP is once again comfortable shrugging off trillions in deficit spending as long as it puts points on the board for “their team.” Nowhere is this more true than in the Republican tax bill.

The White House continues to peddle the fiction that Trump’s corporate tax cut pays for itself, takes care of the middle class, and doesn’t grow the debt. Not only can all of those things not be true at the same time, none of them are actually true in the first place.

The cut doesn’t pay for itself

According to the White House, the loss of $1.5 trillion in tax revenues will be made up inside of ten years by the dramatic, predicted growth of the US economy after the cut. It’s a classic 1980s “trickle-down economics” argument: cut taxes on the rich and they’ll grow the economy so much that total tax receipts will never fall.

Except it has literally never worked out that way.

The idea that cutting taxes leads to increased revenue is counter-intuitive for a reason. The Bush Tax Cuts saw revenues as a percent of GDP initially plumet and, even with the housing bubble in full effect to nearly the end of his term, they never recovered to their FY2000 level. The same holds true for the Reagan tax cuts. Real wages didn’t rise under Reagan; they fell, and with them the hopes that a tax cut could pay for itself.

It’s based on bad assumptions

Of course none of that matters if the economy goes gangbusters after the cut. President Trump predicts better than 3% annual GDP growth after the corporate tax cut. For reference sake, that’s about what the US was experiencing in the fever days of the housing bubble. Indeed, with the exception of two years in the middle of that bubble, American GDP hasn’t topped 3% growth since the heady days of the DotCom boom in the 1990s.

Which is why most economists say these 3% predictions are hogwash.

Unemployment in the US is at 4.7% right now. Capital is already leveraged. The market is already up. There are no vast piles of untapped land, labor, or capital sitting about waiting for the right regulatory conditions. That means, at best, Trump might see 2.4% growth over the next half decade — right in line with what we saw in 2014 (2.4%) and 2015 (2.6%).

And full of expirations that won’t

Republicans know they won’t get many votes from Democrats for a corporate tax cut that’s grounded in shoddy economics and wishful thinking so they’ve been preparing to ram the thing through the Senate under reconciliation rules. Under the budget resolution they drafted, the tax cut can’t drop federal receipts by more than $1.5 trillion over the next ten years.

Now the parts of the bill that are important to the GOP are written into the text as permanent cuts. The corporate tax rate is set to be cut to 20% forever not just until some future date. But nearly everything else has a “sunset” date, beyond which Congress will have to reauthorize the cut or the law returns to the pre-cut state. It’s an open secret on the Hill that these sunset dates are a way of gaming the system to put the cost of the bill under $1.5 trillion. Republicans fully expect the cuts to be reauthorized because they’re the popular parts of the bill — child tax credits, enlarged standard deductions, and the like.

But that also means that the cost — the real cost — of the bill is probably significantly more than $1.5 trillion. While the GOP as a whole seems comfortable shrugging off the trillions in debt it’ll take to pay for this corporate tax cut, there are still a few principled Republicans who are concerned about deficits regardless of who controls the White House.

And they’re being taken for a ride.

Tell Congress what you think!

If you think your Senator actually cares about deficits and doesn’t just pay lip-service to the topic when there’s a Democrat in the White House, Congress needs to hear from you. The Senate will likely vote on the GOP’s corporate tax cut in the next few weeks.

Text RESIST to 50409 to tell your representatives or Senators what you think about this or any other issue before Congress or use Facebook messenger to do the same thing by clicking here.

You can also text TAXES instead to see the immediate, estimated impact on your tax bill based on the Trump framework.

More On Taxes

Want to learn more about the Trump’s corporate tax cut and how it’ll affect you? We’ve got you covered.