The House GOP tax reform bill passed last week would not produce enough economic growth to fully offset the nearly $1.3 trillion in revenue losses created by the legislation, according to a new analysis released on Monday from the nonpartisan Tax Policy Center (TPC).
According to the TPC report, the total cost of the House Republican tax bill would go from $1.436 trillion before accounting for economic growth to $1.266 trillion after factoring them in, contradicting claims made by Treasury Secretary Steven Mnuchin, who argued that “the plan will pay for itself with growth.”
The TPC said that “the proposed legislation would affect output primarily through its influence on aggregate demand, labor supply, and saving and investment.”
The Hill added:
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 TPC also released a separate report on Monday about how different income groups benefit from the Senate’s tax bill, e.g. those making between about $310,000 and $750,000 would receive the largest tax cuts as a share of income, while taxpayers in the bottom fifth of income would see a slight tax increase on average in 2027.