Treasury Secretary Steve Mnuchin is seated during a ceremony to swear in Joseph M. Otting as Comptroller of the Currency, at the Treasury Department, Monday, Nov. 27, 2017 in Washington.
Treasury Secretary Steve Mnuchin has claimed from Day One that the Trump tax cuts will pay for themselves with a healthy dose of economic growth. “Not only will this tax plan pay for itself, but it will pay down debt,” he said in September. For almost as long, he has promised that his tax analysts would produce a detailed analysis that backed up that claim.
Mnuchin said he had more than 100 analysts working on the report, which would be released before Congress voted. But as the tax bill was unveiled, details were hashed out in the House and Senate, and votes took place, tax wonks questioned whether the report would ever come out. As it turns out, The New York Times found out that nobody in the Treasury’s Office of Tax Policy—which is in charge of economic forecasting—was even working on any such analysis.
On Monday, more than a week after the Senate passed its tax bill and as the conference committee was ramping up, Mnuchin finally released his report—a flimsy one-page analysis that clocks in at fewer than 400 words. (If indeed 100 Treasury analysts worked on it, that comes out to under four words per analyst. Good thing no one’s doing a productivity analysis of Mnuchin’s Treasury Department.)
The one-pager (reminiscent of the White House’s original one-page tax proposal) projects that the economy will grow at a sustained rate of 2.9 percent over 10 years, compared with baseline projections of 2.2 percent from Treasury’s previous projections. That means they think the bill will generate a 0.7 percent increase to the GDP from its supply-side economic stimulus, half of which Treasury estimates will be generated by the corporate tax cuts. The other half, the report says, will “come from changes to pass-through taxation and individual tax reform, as well as from a combination of regulatory reform, infrastructure development, and welfare reform as proposed in the administration’s Fiscal Year 2018 budget.”
To be clear, Mnuchin is essentially admitting that the $1.5 trillion in tax cuts will not pay for themselves: Offsetting them will also require rampant deregulation (which as of yet has not really happened), a massive infrastructure bill (which as of yet does not exist), and cuts to the social safety net (which both President Trump and Speaker Paul Ryan promise is coming right after tax reform).
One reason (among many) that Mnuchin’s report is nowhere near a serious tax analysis of the Senate’s bill is that it’s unclear whether there was actually any real modeling done. A traditional dynamic scoring model would take into account the bill’s actual provisions in order to measure macroeconomic effects. This report doesn’t do that.
“So how, in the eyes of the Treasury Department, does the legislation go from losing $1 trillion over the next decade to generating an additional $1.8 trillion?” asks Chad Stone, chief economist at the Center on Budget and Policy Priorities. “Not by asking Treasury’s career staff to do a real dynamic analysis, but merely by assuming 2.9 percent annual economic growth instead of 2.2 percent.”
By simply wishing economic growth into existence, Treasury’s assertions run contrary to almost every independent assessment of the tax plan, which find that the tax scheme won’t do much, if anything, to boost economic growth and most certainly won’t pay for itself.
As Business Insider reports, an analysis from the University of Pennsylvania's Penn-Wharton Budget Model released Monday said the Senate version of the tax bill would boost GDP by only about half a percentage point to 1 percentage point total after 10 years. The model said the bill would add $1.5 trillion to $1.8 trillion in new deficits over that time frame "even under assumptions favorable to economic growth." Meanwhile, the Joint Committee on Taxation, Congress’s independent tax analyst, estimated the bill would boost growth by 0.8 percent while creating $1 trillion in new deficits.
Tax experts and political opponents alike have also roundly criticized the Treasury’s report. “The report does not appear to be a projection of the economic effects of a tax bill,” Scott Greenberg, a tax analyst at the conservative Tax Foundation, told The New York Times. “It appears, on the other hand, to be a thought experiment on how federal revenues would vary under different economic effects of overall government policies. Which is, needless to say, an odd way to analyze a tax bill.”
Jason Furman, who served as the chair of President Obama’s Council of Economic Advisors, blasted the report as an “embarrassing joke.” Maya MacGuineas, who heads the deficit-hawkish Committee for a Responsible Federal Budget, said the report "makes a mockery of dynamic scoring and analysis."
Democratic Senate Minority Leader Chuck Schumer called it “fake math.” "It’s clear the White House and Republicans are grasping at straws to prove the unprovable and garner votes for a bill that nearly every single independent analysis has concluded will blow up the deficit and generate almost no additional economic activity to make up for it," Schumer said in a statement.
It’s unlikely that widespread criticism of the quality and rigor of the administration’s tax analysis will slow the momentum of the GOP’s tax plan. Republicans have routinely dismissed critical assessments of their legislation—be it the American Health Care Act, their budget, or the tax plan—as either politically motivated or analytically faulty. Senate Finance Chairman Orrin Hatch pushed back on a JCT report in November that found that the tax plan would end up increasing taxes on low-income households in 2021. “Anyone who says that we’re hiking taxes on low-income families is misstating the facts.”
Meanwhile, Republicans are busy in conference making their tax plan even more regressive. On Wednesday, news broke that Republican negotiators on the conference committee had struck a deal that would slash income tax rates for high-earning households from 39.6 percent to 37 percent to appease Republicans from New York and California, states that would get whacked by the plan’s ending of the State and Local Tax deduction.
Mnuchin’s report is nothing more than a last-minute troll. And it just proves that there is literally nothing—including both real and fake math—that will keep Republicans from securing tax cuts for the rich.