Goldman Sachs: Tax cuts would only boost growth 0.2 points

Goldman Sachs: Tax cuts would only boost growth 0.2 points
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The Republican tax reform plan would only increase economic growth by 0.1 to 0.2 percentage points over the next two years, according to a Goldman Sachs analysis, a far cry from the massive boost Republicans say would pay for their tax cuts.

“Our analysis suggests that the ‘dynamic’ cost of the tax cuts is about 20 percent lower than the ‘static’ cost, consistent with the implications of the academic literature,” the bank wrote in a Saturday report.

Republicans have argued that the $1.5 trillion in deficit-financed tax cuts, measured by a “static” score that does not include the effects of economic growth, would largely pay for itself once the growth factors were considered in a “dynamic” analysis.

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The Trump administration has frequently argued that economic growth would increase from its current predicted average of roughly 1.8 percent a year over the next decade to 3 percent, an increase of 1.2 percentage points. Congressional Republicans have relied on growth increasing to 2.6 percent to balance their budgetary predictions, a growth increase of 0.8 percentage points.

“We find a boost to GDP growth of 0.1-0.2 [percentage points] in 2018-2019 and smaller amounts in subsequent years, consistent with our existing estimates,” the Goldman Sachs analysis stated. 

“The effect occurs mostly via the positive impact of a lower corporate tax rate on business investment and personal consumption, with personal income tax cuts much less powerful,” it added.

The analysis could throw a wrench in the GOP tax plan, as some Republicans in Congress have said that they will not stomach a reform plan that balloons deficits and substantially adds to the overall debt burden.