Will Trump's Tax Cuts Actually Grow the Economy?

By Yuval Rosenberg and Michael Rainey White House Makes a Bold Claim About How Tax Cuts Would Help the Economy … and It’s Undercut by a New Report The Republican sales pitch for the “Unified Framework” tax plan released last month has often relied on claims that slashing rates for corporations, combined with other elements of the plan, would spur economic growth — enough growth, some posit, that the tax cuts would ultimately pay for themselves. Case in point: President Trump’s Council of Economic Advisers on Friday released a [report]( predicting that cutting the corporate tax rate from 35 percent to 20 percent and allowing companies to immediately write off the cost of capital investments would boost long-term GDP “by between 3 and 5 percent,” with the effects potentially kicking in as quickly as three to five years. “There will be additional GDP effects from reforms to individual income and pass-through business taxes, which we have not modeled, as well as growth from regulatory reform … and an infrastructure package,” the paper adds. And CEA Chairman Kevin Hassett reportedly [expressed optimism]( Friday that the Trump budget and corporate tax cuts would generate enough growth to pay for all of the tax cuts being proposed. Most economists scoff at such claims, and a [new report]( by the Urban-Brookings Tax Policy Center finds that, even using a “dynamic” analysis that factors in economic feedback effects, the blueprint released last month would only boost growth for the first few years — and then lead to [slower growth](. The dynamic analysis also found that federal revenue would fall by $2.4 trillion over the next decade and by $3.4 trillion in the following 10 years, or about the same as under conventional scoring. Of course, the projected economic effects depend on the model and inputs being used — don’t be surprised when you see some very different projections coming from the White House or congressional Republicans — but the Tax Policy Center did a second analysis using the Penn-Wharton Budget Model that similarly found that growth would increase slightly from 2018 through 2027 and then slow in the decade after that. “While the Framework’s tax rate cuts would generate new economic activity at first, those growth effects would be washed out in a few years by the effects of higher budget deficits,” the Tax Policy Center’s Howard Gleckman explained in a [blog post](. “Because the federal government would have to borrow more to finance the tax cuts, less money would be available for private investment.” [Share]( [Tweet]( [Forward]( Let the Frenzy Begin! Lobbyists (and Lawmakers) Swarm the Tax Bill Expect to see a [“lobbying frenzy”]( in Washington as Republicans prepare to release their tax bill. House Ways and Means Chairman Kevin Brady plans to release the bill, which represents the most sweeping overhaul of the tax code in 31 years, on November 1. But the jockeying for position has already begun, Bloomberg reports, with special interest groups roaming Capitol Hill looking for information about what’s coming — and whose ox might get gored. The problem for lobbyists is that Republicans have kept many of the details of the their plan to themselves, sharing little beyond a brief [outline]( released in September. The lack of information has allowed GOP leaders to move quickly while keeping resistance to a minimum, but that’s all about to change. Lawmakers can expect to have lobbyists banging on their doors morning, noon and night as they fight to protect the tax breaks coveted by the industries they represent. Tim Phillips, president of the Koch-backed group Americans for Prosperity told Bloomberg, “It’s pretty fierce. We met with Brady on Tuesday and he was saying their offices are swamped with all the special interest groups swarming in asking to be protected.” Lobbyists aren’t the only ones who have been in the dark on details of the tax bill. Many lawmakers, even those on key committees, have been locked out of the process thus far. Rep. Jim Renacci of Ohio, who sits on the tax-writing panel, told Blomberg, “The problem is that Ways and Means has somewhat been kept out of the loop with details. There are still a lot of hurdles to get it done.” Those hurdles include major issues ranging from the elimination of state and local deductions to the treatment of trillions of dollars in profits held overseas by U.S. corporations. Every move Congress might make to recover some of the money lost to the more than $5 trillion in tax cuts Republicans want is guaranteed to anger one interest group or another. The tax negotiators have done the easy part — cutting taxes — first, leaving the hard part — finding new revenues — for later. As Sen. John Cornyn [put it]( earlier this week, it’s time to get to “the spinach. Not the desert, but the spinach. That’s the off-sets.” [Share]( [Tweet]( [Forward]( Quote of the Day Who Would Benefit from ‘Repatriating’ $3 Trillion in Foreign Profits? Republicans have their eyes on trillions in foreign profits parked overseas by U.S. companies. The [GOP tax blueprint]( released last month aims to end “the perverse incentive” for companies to keep foreign profits offshore. To do that, Republicans are proposing to move away from the current “worldwide” taxation system for corporations, which taxes both domestic and foreign profits, to a “territorial” system that would exempt U.S. businesses from paying taxes on their foreign profits. They also plan to create a significantly lower tax rate for profits that have already been earned but are being kept outside the country to avoid U.S. taxes. President Trump and other GOP leaders say the [repatriation]( of foreign profits is one of the key fiscal changes that will boost economic growth. Estimates of how much money is sitting offshore vary, but there’s little doubt the numbers are quite large. Apple alone is reportedly sitting on [$216 billion overseas]( and Microsoft has about $128 billion in offshore accounts. Trump has claimed that as much as [$5 trillion]( is at stake, but most estimates are about half that. In a note to clients Thursday, Goldman Sachs pegged the number at $3.1 trillion. Aside from the amount, though, there’s a more fundamental question about the effect repatriation would have on the economy. Critics of the GOP plan argue that much if not all of the foreign profits are held “overseas” only in a technical sense — the cash may be on the books in Ireland or Bermuda, but it’s fee to roam the Earth in pursuit of returns. Adam Looney of the Brookings Institution took up the subject Wednesday, [arguing]( that the repatriation of profits won’t help the U.S. economy because the money has already come back: “Given how we talk about these earnings, you could be forgiven for thinking U.S. companies have stashed their cash inside a mattress in France. They haven’t. Most of it is already invested right here in the U.S.” An [analysis]( by the Senate’s Permanent Subcommittee on Investigations in 2011 came to a similar conclusion, finding that “that large multinational U.S. corporations with substantial offshore funds have already placed nearly half of those funds in U.S. bank accounts and U.S. investments without paying any U.S. tax on those foreign earnings.” In its note to clients this week, Goldman Sachs sides with the skeptics: “Repatriation is likely to have a limited effect on investment in the US because the unrepatriated earnings are already largely available for domestic activities.” That’s not to say, however, that repatriation wouldn’t generate significant tax revenues. According to Goldman Sachs, “Most estimates of the revenue effect of a tax on deemed repatriation suggest that a 10% tax on untaxed earnings held in cash and cash equivalents and a 4% tax on reinvested earnings would generate around $160bn.” [Share]( [Tweet]( [Forward]( Fiscal Flashes What Happened to Simplifying the Tax Code Anyway? Economist and investment strategist Ed Yardeni of Yardeni Research in today’s note to clients: “There are lots of good reasons for overhauling our tax system. However, while the Republicans might succeed in pushing for some tax cuts, I doubt that the tax code will be shorter or much simpler than before their reforms. I wish I was kidding, but the reality is that we have the best tax code money can buy. Billions of dollars have been spent on lobbyists and by lobbyists to fashion the tax code to meet the special interests of special interest groups. It’s hard to imagine that Trump will be signing a tax reform package that will significantly reduce the complexity of the tax code. I hope I am wrong, but I’ll believe it when I see it.” How Obamacare Premiums Are Looking for 2018: Researchers at the Kaiser Family Foundation analyzed the state of the Obamacare markets in the wake of President Trump’s elimination of the cost-sharing reduction payments to insurers. They conclude that, as predicted, the White House policy change is driving premiums on silver plans higher by between 7.1 percent and 38 percent, based on the data available: “Data on 2018 marketplace premiums indicate premiums will increase substantially for the vast majority of insurers due to the discontinuation of cost-sharing reduction payments. In many cases, the premium surcharges are only for silver-level plans. … While consumers will generally be protected, the federal government could end up paying more in premium subsidies than it is saving in discontinuing the cost-sharing reduction payments.” For the full analysis, including details on 24 state markets, [click over to Kaiser](. Send Us Your Tips, Feedback or Pumpkin Pie Recipes: No really, who makes a great pumpkin pie out there? Email Yuval Rosenberg at yrosenberg@thefiscaltimes.com and follow me on Twitter [@yuvalrosenberg](. Follow The Fiscal Times on Twitter [@TheFiscalTimes](. Hatch vs. Schumer: Why the 1986 Tax Reform Matters Today President Ronald Reagan signed the Tax Reform Act of 1986 into law 31 years ago this week. Today, two top senators hearken back to that bill in op-eds about the current tax reform push: Orrin Hatch, chair of the tax-writing Senate Finance Committee, [at CNN]( “[O]ur tax code is stuck in the days where the Chicago Bears were winning the Super Bowl and ‘Top Gun’ was number one at the box office. ... In 1986, America's corporate tax rate was on par with other industrialized countries and our international code was comparable to those of our major trading partners, [according to a 2008 analysis]( by the conservative Tax Foundation. Today, we [have the highest statutory]( and fourth highest effective corporate tax of developed countries. … [W]e are closer to the tax reform finish line today than we have been at any other point since 1986. Leaders in the Senate, the House and the administration [are on the same page]( as we work to advance a tax reform proposal that would provide financial relief to low- and middle-income families, simplify our complicated tax code and allow businesses small and large, to compete in today's worldwide economy. Our updated system would provide clarity and simplicity. Under our proposed plan, the vast majority of taxpayers would be able to fill out their returns in a matter of minutes.” Senate Democratic Leader Chuck Schumer in [USA Today]( “Anyone who remembers the substance and the process of the 1986 Tax Reform Act should be baffled that President Trump has compared his current tax plan to that famous bipartisan bill signed by former president Ronald Reagan. Trump’s partisan tax cut bill differs from that one in three major ways: It [helps the rich]( at the expense of the middle class, it would [explode the deficit]( and it hasn’t gone through a thorough, bipartisan process. … The goal of the 1986 act was to simplify the tax code by bringing down rates while at the same time closing loopholes in the tax code. It did those two things in precise unison so that while the tax code got fairer and simpler, it would not add a penny to the deficit. Trump’s tax proposal eschews this model, promising lavish tax cuts to corporations and the top 1% while closing hardly any loopholes or correcting any inefficiencies in the tax code. … In 1991, Trump told Congress that Reagan’s 1986 tax reform bill was an ‘[absolute catastrophe]( If Reagan were here today to learn about Trump’s tax plan, I think he would return the sentiment.” Your Prize for Making It Through the Week If you've ever wondered “What leads someone to care year-round for a fruit of nearly comical proportions?” Atlas Obscura has your answer. Its story on [“The Massively Friendly World of Competitive Giant Pumpkin Growing,”]( includes this bit of trivia you can impress your friends with on Halloween: “A pumpkin first clocked in at over 500 pounds in 1984. But thanks to better fertilizers, a more talkative and international community of pumpkin growers, and improved seed stocks, one can now feasibly grow a pumpkin weighing over 2,000 pounds and still not be a top-ranked grower.” What We're Reading - [Questions Arise on Infrastructure Funding as Tax Revamp Progresses]( – Bloomberg BNA - [That 401(k) Tax Break Shouldn't Be Sacred]( – Justin Fox, Bloomberg View - [Tax Reform Debate Taxing Republicans' Negotiating Skills]( – Veronique de Rugy, Reason - [House Freedom Caucus Proves It's a Deficit Scam]( – Stan Collender, Forbes - [This Tax Plan Is a Disaster for American Children and Families]( – Seth Hanlon and Melissa Boteach, The Hill - [Trump’s $700 Billion Gift to Wealthy Foreigners]( – Paul Krugman, New York Times - [Among Developed Nations, Americans’ Tax Bills Are Below Average]( – Pew Research Center - [Republicans Want to Make Corporate Tax Avoidance Even Easier]( – Justin Miller, American Prospect - [What CVS's Possible Acquisition of Aetna Could Mean for Shoppers, Patients]( – USA Today - [How Republicans Can Make a Deal on Health Care]( – Lanhee Chen, New York Times - [Five Experts on What's Next for the ACA After Trump's Executive Order]( – Axios - [World's Witnessing a New Gilded Age as Billionaires’ Wealth Swells to $6 Trillion]( – The Guardian - [Jeff Bezos Is Now the Richest Man in the World with $90 Billion]( – CNBC Copyright © 2017 The Fiscal Times, All rights reserved. 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