New GOP tax cuts would add $3.8 trillion to deficit, says report
A second round of GOP tax cuts would add $3.8 trillion to the federal deficit over the next two decades, according to a report released this week by the Urban-Brookings Tax Policy Center.
A bill that the House Ways and Means Committee approved Thursday, “Protecting Family and Small Business Tax Cuts Act of 2018,” would reduce federal revenue by $631 billion from FY 2019-28 and an additional $3.15 trillion between FY 2029-38, the group estimated.
{mosads}The bill, released by Rep. Kevin Brady (R-Texas), chairman of the House Ways and Means Committee, would extend individual income and estate tax provisions in the 2017 Republican tax bill, the Tax Cut and Jobs Act.
The report from the Tax Policy Center, which is led by a former tax official from the Obama administration, states that about two-thirds of taxpayers would get a tax cut, while about 9 percent would get a tax hike from the bill. Higher-income households, it says, on average would receive larger average tax cuts as a percentage of after-tax income.
The provisions in the 2017 tax law are not set to expire until 2025 regardless, which explains the lower estimate for revenue lost in the first 10-year period.
While Republicans have argued the new tax bill would boost the economy, the report estimates its effects would be minimal. It estimates the bill would increase gross domestic product by about 0.5 percent in 2026, 0.4 percent in 2028 and 0.1 percent in 2038.
By imposing lower tax rates on labor and capital income, the bill would increase incentives for working and saving, the Tax Policy Center found. This feedback loop would increase revenue by a cumulative $71 billion over the first decade analyzed and $157 billion over the second.
The Joint Committee on Taxation also estimates $631 billion in revenue would be lost under the bill in the next decade, but has not made predictions past then.
In addition to approving legislation on Thursday to make the 2017 tax law’s individual cuts permanent, the Ways and Means committee also advanced measures focused on incentivizing savings and encouraging business innovation.
The University of Pennsylvania’s Penn Wharton Budget Model on Thursday released an analysis that found that, together, the three bills would lose $614 billion in revenue over the next 10 years and would reduce revenue by about $3.8 trillion by 2040.
The group estimates that by 2040, the package would reduce gross domestic product by between 0.6 percent and 0.9 percent. It argued that the economic benefits of the tax changes are outweighed by the negative effects of additional debt.
— Updated 5:50 p.m.