Hours after Trump provided the broad framework, if few details, to his tax plan, conceived almost certainly by Goldman Sachs economists Alec Phillips and Jan Hatzius (and presented to the public by former Goldman employees Steven Mnuchin and Gary Cohn), the CRFB calculated its impact on both the US budget deficit and future US debt. This is how the CRFB phrased it:
“the White House released principles and a framework for tax reform today. We applaud the President’s focus on tax reform, but the plan includes far more detail on how the Administration would cut taxes than on how they would pay for those cuts. Based on what we know so far, the plan could cost $3 to $7 trillion over a decade– our base-case estimate is $5.5 trillion in revenue loss over a decade. Without adequate offsets, tax reform could drive up the federal debt, harming economic growth instead of boosting it.”
The CRFB summarized its math of Trump’s tax plan in the table below…
… and concluded as follows: adding interest costs, a $5.5 trillion tax plan would be enough to increase debt to 111% of Gross Domestic Product (compared to 89% of GDP in CBO’s baseline) by 2027.
On Sunday morning, speaking to NBC’s Meet the Press, VP Mike Pence confirmed that – as now appears virtually assured – not only will Trump’s tax plan not be budget, or revenue-neutral, but it will be debt-funded, effectively a continuation of the Obama status quo.
Specifically, Pence acknowledged that the Trump administration’s tax proposal could increase the deficit, at least at first. “Maybe in the short term,” he said during an exclusive interview on NBC’s “Meet The Press.”
To be sure, Pence was confident that eventually the deficit would decline as it would be overcome by economic “growth” thanks to the tax cuts it will fund. However, even he hedged: “the truth is, if we don’t get this economy growing at 3 percent or more, as the president believes we can, we’re never going to meet the obligations that we’ve made today.” Here he is referring not only to the total US/credit of 350%, but the non-capitalized liabilities, which when added to the list of US obigations, make US consolidated debt/GDP rise to some 800%. Needless to say, that number will never be repaid absent hyperinflation. Indicatively, there has yet to be an empirical case in recent history in which debt-funded ‘growth’ led to a reduction in the underlying debt.
That said, Pence confirmed the Catch 22 the US finds itself in, and emphasized the need for economic growth and tax relief. “The American people are crying out for tax relief,” said Pence.
The Trump administration last week rolled out its outline for tax reform, which included a cut to the top income tax rate for individuals in addition to lower corporate tax rates. The president, who reached his 100-day mark in office on Saturday, has billed the tax plan as one of the largest tax cuts in U.S. history. Due to its budget-busting nature, Trump’s tax plan is expected to meet stiff opposition from both moderate and conservative Republicans in Congress.