Why Economists Are Warning That The Trump Tax Plan Will Be An Epic Disaster

U.S. President Donald Trump speaks during a news conference with Shinzo Abe, Japan's prime minister, not pictured, at Akasaka Palace in Tokyo, Japan, on Monday, Nov. 6, 2017. Photographer: Kiyoshi Ota/Bloomberg
Kiyoshi Ota/Bloomberg Pool
Views

As Republicans in the House and Senate hash out their tax bill differences in a conference committee behind closed doors, with the goal of producing a final bill before the holiday break, conservative economists tell TPM that the policies likely to become law will wreak havoc on the country for many years to come. Though Republicans insisted repeatedly over the past few weeks that the $1.4 trillion in tax cuts, most of them geared toward wealthy individuals and corporations, would pay for themselves by stimulating economic growth, they presented no evidence to support their claims.

Instead, the economists and former government officials predicted, the bill will drive up the federal deficit, shrink and destabilize the health care market, exacerbate already historic income inequality, and pressure Congress to make deep cuts to the social safety net and government programs.

“I don’t see how this bill makes America great again,” said Bill Hoagland, a self-described “deficit hawk” Republican who worked for decades for the Senate Budget Committee and now serves as the senior vice president of the Bipartisan Policy Center. “With the populist direction the country has gone in this year, it just doesn’t seem right to give big corporations a permanent tax cut and not individuals. And it’s an open question with those companies—will they translate that back into actual jobs and not into stock options and buybacks?” 

Deficit flops

Republican senators, who for the last several years have railed against and campaigned on the specter of the federal deficit, voted Saturday on a bill that several independent analyses have said will cost the government at least $1 trillion dollars over 10 years—even taking into account the economic growth it may generate.

In the face of two official government bodies scoring the bill, the Congressional Budget Office and the Joint Committee on Taxation, as well as independent studies by the Tax Policy Center, the Tax Foundation and the Wharton School of Businesses, GOP lawmakers insisted that the tax cuts would spur so much economic growth that they would pay for themselves and then some.

“I am absolutely convinced that this bill will end up reducing the deficit,” Sen. Rob Portman (R-OH) told reporters. “I feel very good about the fiscal situation.”

They provided zero evidence to support this claim. (A promised report from the Treasury Department showing a surge of economic growth turned out not to exist—prompting an investigation by the department’s inspector general.)

Instead, GOP lawmakers coordinated to undermine and discredit the reports showing their bill would bleed the government of more than a trillion dollars in the coming decade.

Sen. Ted Cruz (R-TX) told TPM before the vote that the “the JCT report is exceptionally shoddy.”

“They’re always going to be wrong,” his fellow Texan John Cornyn, the Senate majority whip, told reporters.

Both conservative and moderate economists told TPM that they have seen nothing to support the lawmaker’s assertions, and called the bill “economically irresponsible.” 

“It never was a question in my mind that tax cuts do not pay for themselves,” Hoagland told TPM. “Adding this much to the debt, which is already growing, is a tax on future generations. I think what this tells you is that Republicans were so desperate for a victory that policy didn’t matter.”  

In defending their tax bill, Cruz and other Republicans cited the economic boost past tax overhauls created.

But Bruce Bartlett, an economic adviser to President Ronald Reagan who helped craft the 1986 tax bill, said such comparisons are extremely misleading.

“There is no historical evidence that any tax cut in history comes anywhere near paying for itself,” he said bluntly. “At the most you get back a third of the revenue you lose, but that might be overly optimistic.”

Bartlett, who also served as a Treasury Department official under George H.W. Bush, added that most previous tax cuts were enacted during economic downturns with high unemployment, and argued this bill will have far less positive impact because the economy is already doing well.  

“When there is more slack in the economy, you get more bang for the buck,” he explained. “But there’s no reason to think that now, when we’re at a cyclical peak, that we’ll see any stimulative effect at all. If I were a corporate executive, I wouldn’t be building new factories for all the new sales I’m going to get.” 

Stan Collender, a former top staffer on the House and Senate Budget Committees, who worked under both Republican and Democratic administrations, said not only will the current bill fail to help the country, it will cause significant harm.

“Unless the laws of economics have been repealed, and not even Trump can do that, this has the potential for being one of the biggest disasters in American history,” he told TPM. “The deficit hawks who for the last few months have been in a witness protection program are going to emerge with a vengeance to demand the deficit they just increased exponentially is a problem, and the pressure on Social Security and Medicaid is going to be pretty intense.” 

A political gamble

Even with unified Republican control, President Trump and Congress have failed repeatedly this year to pass any piece of major legislation. After multiple face-plants on attempts to repeal the Affordable Care Act, the pressure to pass something before the dawn of the 2018 midterm season ramped up significantly. And what better to bring together a fractious gang of Republicans than the Holy Grail of the GOP: tax cuts.

“They have to do this,” Dan Scandling, who worked as a GOP House staffer for nearly 25 years, told TPM. “This is what GOP candidate for years, for generations, have run on. Now that they have the House, Senate and White House, it’s time to put up or shut up.” 

Scandling says the 2018 election, in which House Republicans will have to slog through primaries from the right and general challenges from the left, has been the fire under the seats of wavering Republicans, overriding concerns about the federal deficit.

“They know they would be decimated next fall if they did not deliver some form of tax reform,” he said. “So they’re saying, ‘Trust us and it’ll work out in the end.'”   

But the gamble may not pay off as expected. If the tax bill becomes law, its impact will hit people across the country just a few months before they go to the polls.

“A lot of people will discover their home deduction is not allowed anymore, that their state and local income tax isn’t deductible anymore, and they’re going to be angry,” predicted Collender. “Plus, it’s almost certain that interest rates are going to rise. Homes will be more expensive. Loans will be more expensive. Car sales will go down. So I think Republicans are really going to pay a political price.”

ABOUT THE AUTHOR

Alice Ollstein is a reporter at Talking Points Memo, covering national politics. She graduated from Oberlin College in 2010 and has been reporting in DC ever since, covering the Supreme Court, Congress and national elections for TV, radio, print, and online outlets. Her work has aired on Free Speech Radio News, All Things Considered, Channel News Asia, and Telesur, and her writing has been published by The Atlantic, La Opinión, and The Hill Rag. She was elected in 2016 as an at-large board member of the DC Chapter of the Society of Professional Journalists. Alice grew up in Santa Monica, California and began working for local newspapers in her early teens.

LIKE US ON FACEBOOK