Analysis: House GOP tax bill adds $1.3T to the deficit

Analysis: House GOP tax bill adds $1.3T to the deficit
© Camille Fine

The tax reform bill House Republicans passed last week would not produce enough economic growth to fully offset the more-than-trillion-dollar revenue losses produced by the measure, according to an analysis from the Tax Policy Center (TPC).

The cost of the legislation would go from $1.436 trillion before accounting for economic growth to $1.266 trillion after factoring them in, the TPC said in a report released Monday. 

The TPC's findings contrast with comments Treasury Secretary Steven MnuchinSteven Terner MnuchinMacron takes swipe at Trump tariffs plan Conservatives eye new tax cut for capital gains Overnight Finance: Stocks fall hard | Trump sending delegation to China for trade talks | SEC fines Yahoo M over breach | Dodd-Frank rollback dominates banking conference MORE has made in the past; Mnuchin and other GOP officials have argued that tax legislation would pay for itself through growth and eliminating deductions.

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The House's tax bill would reduce the number of individual tax rates, slash the corporate tax rate from 35 percent to 20 percent and scrap many existing tax preferences. The bill easily cleared the chamber last week, with only 13 Republicans joining the Democrats in opposition.

The TPC said that "the proposed legislation would affect output primarily through its influence on aggregate demand, labor supply, and saving and investment."

It would increase the demand for goods and services because people would see their after-tax incomes go up and would increase savings and investment through its cuts to the corporate rate and temporary allowance for businesses to immediately deduct the full costs of their capital investments. It would also increase the labor supply because it would slightly lower the effective tax rates on labor income, according to the TPC.

The think tank found that the bill would increase gross domestic product by 0.6 percent in fiscal 2018 and boost GDP by 0.3 percent in 2027.

"The estimated boost to output diminishes over time primarily because the effects of aggregate demand fade and the effects of additional federal debt on interest rates grow," the TPC said.

The group also released a separate report on Monday about how various income groups benefit from the Senate's tax bill, which cleared the Senate Finance Committee last week.

The TPC found that all income groups would see tax cuts on average in 2019 and 2025, with those making between about $310,000 and $750,000 receiving the largest tax cuts as a share of income.

The Senate bill sunsets individual tax cuts after 2025 in order to comply with budget rules. As a result, taxpayers in the bottom fifth of income would see a slight tax increase on average in 2027, the TPC said.

In all years, some taxpayers would see their taxes go up under the Senate bill. Nine percent of taxpayers would see increases in 2019, 12 percent would see increases in 2025 and 50 percent would see increases in 2027, according to the report.

The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, considers itself nonpartisan but has been accused by Republicans of having a liberal bias. The group's director served in the Obama administration, but others at the center have worked in GOP administrations.