House Republicans’ tax plan would significantly boost economic growth over the next decade, according to a new outside analysis released Tuesday, enough to prevent its sweeping tax rate cuts from increasing the deficit thanks to the new revenues flowing in to the Treasury.
The report, from the nonprofit Tax Foundation, highlights the Paul Ryan-led Republican effort to solve the difficult math involved in putting together tax reform meant to lower tax rates while also adding to the debt.
After cutting the top income tax rate to 33 percent and the corporate tax rate to 20 percent, the Republican plan reduces revenues by $2.4 trillion over 10 years. But in a “dynamic analysis,” which takes into account the expected additional economic growth that would follow from a simpler system with lower rates, the plan would add only $191 billion to the deficit.
Republicans have said their goal is to submit a campaign plan that wouldn’t add to the deficit, in a dynamic analysis. Democrats, however, are sure to argue that such an analysis is wishful thinking used to justify tax cuts that benefit millionaires more than others.
The Tax Foundation, a nonpartisan nonprofit that often advocates lower tax rates, found that the GOP tax plan would increase economic output by over 9 percent in the next decade by increasing the rewards to working, saving and investing.
That faster economic growth, in the group’s model, would translate to 1.7 million extra jobs and higher wages across the board.
Furthermore, it would result in a dynamic effect of $2.5 trillion of new tax revenues, meaning tax receipts that would result from the new jobs and new commerce spurred by the new tax system.
The plan would also eliminate enough tax breaks — credits, deductions and other preferences — to raise $5.3 trillion for Treasury. Combining that larger tax base and the dynamic effects, the reform plan on paper would make up the vast majority of the $8 trillion tax cut.
That analysis is sure to please the Republican tax-writers, including Ryan and House Ways and Means Committee Chairman Kevin Brady, who have said they will write the plan in such a way that it doesn’t add to the deficit. Based on the Tax Foundation’s analysis, they appear to be in striking distance of that goal.
Brady on Tuesday welcomed the analysis, saying in a statement from his office that it “confirmed” that the reform wouldn’t add to the debt, and might even lower the debt when a different baseline projection for tax revenues is used. “As we’ve said before, the Blueprint is the beginning of our conversation,” Brady said. “As we turn this into actual legislative text, we will ensure the final product is revenue neutral within dynamic scoring.”
But Democrats will likely campaign against any dynamic score as faulty accounting.
Progressives will also point out that the biggest tax cuts will accrue to high earners, thanks to the cuts in the plan to the top income tax rate and to capital gains taxes. The Tax Foundation calculates that the top 1 percent of income earners, those earning well over $400,000 a year, would see their after-tax incomes rise by 5 percent to 13 percent, depending on whether dynamic effects are included. The bottom 80 percent of taxpayers, however, only receive a 0.2 percent and 0.5 percent income boost, in the static analysis, or an 8.4 percent-plus increase in the dynamic analysis.
The Tax Foundation uses a model similar to one of the models employed by the Joint Committee on Taxation, Congress’ official in-house tax estimators, and IRS data. The group has also provided scores of the tax plans introduced on the campaign trail by Donald Trump and Hillary Clinton. Trump’s tax plan, unlike the House Republicans’, is far from reaching deficit neutrality, creating one possible point of tension between the two camps should Trump win election.
