Treasury pushes back at report critical of Trump tax law’s effects

The Treasury Department is pushing back on a Congressional Research Service (CRS) report finding that President Trump’s 2017 tax law had little to no effect on the economy in its first year, calling the methodology of the report “flawed.”

“After careful review of the Report, it appears that CRS’s economic analysis of the [Tax Cuts and Jobs Act] used a flawed methodology that tacitly assumed the anticipation of the Trump Administration’s tax and regulatory relief had no effect on the economic outlook of the United States,” Treasury Assistant Secretary for Tax Policy David Kautter wrote in a letter to lawmakers earlier this week.

{mosads}CRS, an entity within the Library of Congress that provides analyses to lawmakers, said in its report about the 2017 tax law that “the growth effects tend to show a relatively small (if any) first-year effect on the economy.” CRS’s analysis was based on comparing actual gross domestic product (GDP) figures in 2018 to the Congressional Budget Office’s April 2018 estimates of GDP with and without the tax cut.

The report, released late last month, quickly caught the attention of Democratic lawmakers and policy experts, who highlighted it as proof that the GOP tax law has fallen short of Republicans’ promises.

The report comes as Trump is starting to run for reelection, and a key part of his campaign is likely to be the strength of the economy during his first term. The tax law Trump signed in December 2017 is the president’s biggest legislative accomplishment to date, and Democrats are likely to use the CRS report to undercut Trump’s arguments that his policies have boosted the economy.

Treasury’s criticism of the CRS report centers on the fact that the service compared 2018 data to economic forecasts from the beginning of 2018, rather than forecasts from before Trump took office. The Congressional Budget Office (CBO) had increased its estimate of 2018 GDP between June 2017 and April 2018.

Treasury argued that the CRS report excludes an economic theory that people will take actions, such as new investment and hiring, before a policy change is implemented if they expect the policy change to occur.

“Beginning in January 2017, the Trump Administration began implementing an economic agenda to reduce burdensome regulations, engage the private sector to promote pro-growth policies, and negotiate trade deals to open up market access for American businesses,” Kautter wrote. “Therefore, appropriate — and truly unbiased — economic analysis should have benchmarked the impact of the Trump Administration’s economic agenda against forecasts of the economy generated prior to January 2017.”

“Analysis that commences after that time — let alone after the policies are implemented — is biased by the fact that people in the economy started responding immediately to the aggressive agenda pursued by President Trump, including by the widespread expectation of individual and corporate tax cuts and the resultant effects on the economy,” Kautter added.

He also said that CRS’s report excluded data that “would likely have led to vastly different conclusions.”

Treasury’s letter was sent to a handful of lawmakers, including the leaders of the Senate Finance Committee and House Ways and Means Committee.

Michael Zona, a spokesman for Senate Finance Committee Chairman Chuck Grassley (R-Iowa), said the senator is reviewing the CRS report, Treasury’s letter and other comments the committee has received that have criticized the report.

Anti-tax crusader Grover Norquist, president of Americans for Tax Reform, agreed with Treasury’s arguments and said it was good for the department to push back on the CRS report.

But the top Democrat on the Finance Committee, Sen. Ron Wyden (Ore.), said in response to the CRS report that Republicans have attacked every nonpartisan group that has found that their tax law didn’t live up to its promises, and “this is more of the same.”

“The tax cuts haven’t paid for themselves,” Wyden said in a statement to The Hill. “They haven’t raised wages by $4,000. And they haven’t resulted in massive investment.”

Jane Gravelle, one of the authors of the CRS analysis, defended the report.

“We stand by this report. I think the analysis is solid,” she said. 

A CRS spokesperson echoed Gravelle and also said the Service stood behind the report.

Gravelle said that she doesn’t think there was much of a reaction in anticipation of the tax-cut law, because she thinks that people didn’t really know what would happen with tax-cut legislation until late in 2017.

Treasury said in its letter, however, that business optimism and consumer sentiment measures spiked shortly after Trump’s election in anticipation of the president’s agenda.

Kyle Pomerleau, a tax-policy expert at the right-leaning Tax Foundation, said that CRS was correct to compare actual GDP to CBO’s April 2018 projections, rather than to CBO’s projections from 2016, because “more than just the tax law had changed” between 2016 and 2018. He said that the administration’s point about people taking action in anticipation of tax cuts is valid, but not completely relevant to CRS’s analysis which just focused on the law’s effects in 2018.

Pomerleau said that the CRS report “reflects some words of caution that a lot of us have been saying to lawmakers” about not being too optimistic about the GOP tax law’s economic effects.

But he also said that there was an area where CRS misinterpreted some of what CBO estimated, which led to CRS coming to too strong a conclusion about the tax law’s limited impact on the economy.

CRS posted an updated version of the report on Friday that fixed the issue Pomerleau flagged, but Gravelle said that the update doesn’t change the report’s conclusions.