Republican lawmakers on Tuesday brushed aside a report from the nonpartisan Congressional Budget Office (CBO) that found their signature tax law would add $1.9 trillion to deficits by 2028.
The Republicans in their budget resolution allowed for the tax law to add $1.5 trillion to deficits, but insisted throughout the process that the impact on the debt would be minimal. They stood by that take on Tuesday, saying the CBO is wrong to estimate the tax law will actually boost deficits by nearly $2 trillion.
{mosads}“I just totally disagree with their analysis on this. A very modest increase in growth is going to result in more revenue than we would otherwise have. A blowout spending bill is going to cause a problem, which is why the omnibus was terrible,” said Sen. Pat Toomey (R-Pa.). The tax bill, he asserted, would end up adding to government revenue.
On Monday, the CBO estimated that the tax law that went into effect in January would boost real economic growth in the short term to 3.3 percent before it dropped back down below 2 percent in 2020. The boost in economic activity would raise federal revenues by some $461 billion between 2018-2028.
But revenue losses from the tax cuts would cost the government some $2.3 trillion over the same period, the CBO found, leaving roughly $1.9 trillion in increased deficits.
Republicans brushed aside the conclusions, insisting that economic growth would cover the deficits projected and pointing to spending as the real threat to the nation’s fiscal health.
“I think there’s no question that our deficit will go down over time. The reality of it is that as our tax cuts are taking effect, our economy will continue to surge and we’ll have more revenue coming into the government short term,” said Sen. Tim Scott (R-S.C.).
Administration officials took a similar tack.
“The CBO, god bless ’em, they’re very low-ball economic estimates last I looked,” said top White House economic advisor Larry Kudlow on CNBC Monday, though he acknowledged he hadn’t studied the report.
“Our view, as you know, is lower tax rates create incentives to invest and work and that picks up productivity and wages, so that gives you an entirely different baseline,” he said.
Sen. Bob Corker (R-Tenn.) said that spending was not given enough attention in the conversation.
“The fact that Republicans and Democrats voted for a spending bill that’s going to add over $2 trillion in debt over the next 10 years, that speaks to what’s wrong here,” he said. He also asserted the media did not properly cover the deficit implications of the bipartisan 2018 spending bill that passed in March.
According to CBO, the omnibus will add $320 billion to the deficit over 10 years, though that number would rise to $1.7 trillion to $2.1 trillion if spending continued along the path it outlined for 2018 and 2019.
The CBO estimate on the tax law was somewhat larger than the $1.07 trillion estimate from the Joint Committee on Taxation in December for several reasons. Primarily, the CBO included the cost of servicing the debt, a category that is projected to grow substantially in the coming years as interest rates rise.
The Congressional Budget Office also had time to do a more thorough analysis of how the tax bill would affect businesses and estimated that they would be able to pay somewhat lower taxes than expected. Finally, the CBO also took into economic data from the end of 2017, which showed that the economy was growing at a faster pace than first thought. As a result, the tax cut ate into a larger base of expected tax revenue.
The CBO has become a punching bag for Republicans, who say the office is underestimating the economic benefits of lower taxes.
“They’ve been wrong consistently, from the 1930s to the 1960s to the 1980s on the impact of tax cuts as it relates to revenues,” Scott said of the CBO, which was formed in 1974.
When deficits did go up following massive tax cuts, Scott said, it was the result of spending alone, not tax policy.
Budget experts and historians disagree.
“The sun rises in the east, and tax cuts result in less revenues. Those are just the facts,” said Marc Goldwein, senior policy director at the fiscally conservative Committee for a Responsible Federal Budget.
“You could look at history and say that despite tax cuts, revenue continues rising. But it’s rising less than it would have,” he said. With the exception of a few specific cases, he said the vast majority of tax cuts resulted in lower revenues as a share of gross domestic product.
In its own analysis of previous revenue forecast accuracy, the CBO found that it had been off by an average of 1.1 percent in its two-year projection over the course of three decades. Those errors were overestimates.
In Monday’s report, the CBO report included eight other professional estimates of the tax law’s effects in its report. Its report fell roughly in the middle.
CBO defenders are also quick to note that director Keith Hall was appointed by Republican leaders in 2015, and he served in previous economic positions under Republican former President George W. Bush.
“It’s a lot easier to impugn the referee than change our policies,” Goldwein said.