The U.S. Treasury Department produced a one-page document Monday that it described as an “analysis of growth and revenue estimates” based on the Senate tax bill, but economists quickly called the document a political statement, not a rigorous economic study.
The 470-word report says only that the combined impact of President Donald Trump’s economic agenda—including a regulatory rollback—and tax cuts would drive enough growth to increase tax revenue by $300 billion over the next decade. Various other analyses have found that the tax cuts alone would increase federal deficits, by as much as $1 trillion.
The document, which Treasury calls a “white paper,” doesn’t look at the tax plan in isolation—an analysis that Secretary Steven Mnuchin had previously pledged to conduct with full transparency. Instead, it merely adopts the administration’s projections of 2.9 percent average annual growth, a number that’s based on various policy goals.
As such, the Treasury report is “a restatement of their budget” rather than a macroeconomic score of the tax plan, said Douglas Holtz-Eakin, a conservative economist with the American Action Forum. Holtz-Eakin was among a group of economists who wrote to Mnuchin last month to support the notion that the tax plan would boost growth substantially.
House and Senate lawmakers are currently working to craft compromise legislation with a goal of sending it to Trump next week—a timeline that represents the administration’s best hope of achieving a major legislative victory this year.
“You have to view this as a political document, not an economic document,” said Stephen Stanley, chief economist at Amherst Pierpont Securities and a former researcher at the Richmond Federal Reserve. “The work should be viewed as advocacy rather than academic work.”
Stanley added that he’s “sympathetic to the concept that the tax package could boost growth and bring in additional revenue.” But “I would not be as aggressive as the administration,” he said.
The growth projections in the White House budget were crafted in part based on some different tax provisions from the ones Congress is currently considering. For example, it called for ending “the burdensome alternative minimum tax” and a 3.8 percent tax on capital gains and dividends—though the Senate bill wouldn’t repeal either levy.
In addition, White House Budget Director Mick Mulvaney said in April that the White House’s growth estimates of about 3 percent were based in part on a list of tax principles it released that month, a list that included setting the corporate tax rate at 15 percent. The Senate bill would set that rate at 20 percent—down from the current 35 percent—and make that change in 2019, not immediately.
While the budget didn’t contain a specified corporate rate, the “core” principle of corporate reform has been to dramatically reduce the rate—which the House and Senate bills both do, a Treasury Department spokeswoman said in an email.
Using the administration’s growth projections—which represent an annual increase of 0.7 percent over baseline estimates—the document said Trump’s economic policies would lead to $1.8 trillion in new revenue over a decade, more than offsetting the Senate tax plan’s nearly $1.5 trillion revenue cost.
Roughly half the boost in growth would come from corporate tax cuts, while the other half would come from changes to pass-throughs, individual tax cuts and “a combination of regulatory reform, infrastructure development, and welfare reform as proposed” in the administration’s 2018 budget.
An analysis released by Congress’s official scorekeeper, the Joint Committee on Taxation, previously found that the Senate tax bill would generate enough economic growth to lower its $1.4 trillion revenue cost by only about $458 billion over a decade.
After accounting for interest rates, the growth figure would fall to $407 billion, according to the JCT. That would leave a 10-year revenue loss of roughly $1 trillion. A spokeswoman for the tax-writing Senate Finance Committee criticized the JCT study, which came out just a day before the chamber voted to approve the bill, as “incomplete” because the Senate bill was “evolving.”
The bill’s backers, including Mnuchin, have argued the tax plan would pay for itself through robust economic growth resulting from the cuts—but several analyses have emerged countering that argument.
A report that was also released Monday by the Urban-Brookings Tax Policy Center, an independent group, found that after accounting for larger economic effects, the Senate plan would reduce its revenue loss by just about $186 billion over a decade—leaving almost $1.3 trillion in new deficits over that time.
“We acknowledge that some economists predict different growth rates,” Treasury wrote in its document.
Mnuchin came under fire last month after a media report said Treasury hadn’t completed an analysis of the GOP tax plan that the secretary had been promising for months. The Treasury secretary has said repeatedly that he has more than 100 people at the agency working on economic models that will support his assertions that the proposed tax rewrite would give the middle class a big tax cut and boost the U.S. economy.
Treasury’s inspector general has an open investigation into whether political considerations have interfered with the promised analysis. The IG’s office said Monday that the review will continue.
“Mnuchin promised an economic analysis—but this isn’t it,” said Senator Elizabeth Warren, a Massachusetts Democrat, said in a statement Monday. Warren asked for the IG investigation last month. “I look forward to the Inspector General promptly completing his investigation into the Treasury Department’s failure to release any meaningful analysis of a multitrillion dollar tax proposal.”
‘Cut the Deficit’
“We believe there will be $2 trillion of additional growth,” Mnuchin said Oct. 1 on ABC’s “This Week.” “So under our plan, we believe this will cut the deficit by $1 trillion and that’s what we’re focused on.”
Instead of the full analysis, Mnuchin last month released a letter signed by nine economists, many from past Republican administrations, saying the tax plan will lead to “substantial growth.”
Reports produced by Treasury’s Office of Tax Analysis are usually 20 or 30 pages long, produced with the support of about 40 PhD economists in that office, said Mark Mazur, director of the Tax Policy Center. He served as the department’s assistant secretary for tax policy during former President Barack Obama’s administration.
Economists were quick to dismiss Monday’s report.
“Treasury’s statement that the tax legislation would not increase the federal government’s deficits and debt load are not credible,” said Mark Zandi, chief economist at Moody’s Analytics Inc.
Senate Minority Leader Chuck Schumer called Treasury’s analysis “one page of fake math.”
Separately, finance ministers from Europe’s five biggest economies warned Mnuchin in a letter that the current tax plan may break international treaties on double taxation, and hurt trade flows.
The plan “may risk having a major distortative impact on international trade,” finance ministers from Germany, France, the U.K., Italy and Spain said in a letter to Mnuchin released Monday.
—With assistance from Toluse Olorunnipa, Lynnley Browning and Steve Matthews