The Republican tax reform plan, which includes $1.5 trillion in deficit-financed tax cuts, would only increase economic growth by 0.1 to 0.2 percentage points over the next two years, according to a new report from Goldman Sachs.
This is a far cry from the 1.2-point increase predicted by Treasury Secretary and former Goldman Sachs executive Steve Mnuchin, who has gone so far to suggest that growth would increase enough to eliminate related deficits together.
“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.
The Hill added:
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.