A debt watchdog says the GOP is relying on “fantasy economics” in terms of overly-optimistic economic growth and deficit projections in its tax plans.
“It is frightening that so many members of Congress are willing to believe in fantasy economics based in no historical or mathematical reality,” said Committee for a Responsible Federal Budget president Maya MacGuineas.
MacGuineas made the comment in a statement on the release of the Senate tax bill, which would lower the corporate tax rate and top individual rate, raise the threshold for the estate tax, and do away with a slew of deductions.
MacGuinness said the plans also relied on a slew of budgetary tricks and gimmicks to make the deficit math look better than it really is.
“As the Senate marks up this bill, we encourage members to either propose some serious pay-fors or scale back the cost of the bill and reject any gimmicks that hide its true cost,” she said.
Many Republicans have argued that tax reforms will stimulate economic growth, which will lead to higher incomes and more business activity and higher tax revenue to bring down the deficit.
“We think there will be $2 trillion of growth. So we think this tax plan will cut down the deficits by a trillion dollars,” Treasury Secretary Steve Mnuchin said in September.
If that were true, it would more than pay for the $1.5 trillion to deficits the GOP tax cuts would produce over a decade.
But several studies that ran a dynamic score-one that takes economic growth into account – of the House bill found that growth would only cover only a fraction of the deficit.
The Penn Wharton Budget Model (PWBM), for example, said that even with economic growth taken into account, the plan would reduce revenues by $1.4 trillion to $1.7 trillion.
Credit ratings agency Fitch said that under the GOP plan, the economy would settle on a 2.2 percent growth rate, well below the 3 percent rate the administration has promised. It would increase the debt burden from 77 percent of GDP to 120 percent of GDP in the next decade.
“Tax cuts may lead to a short-lived boost to output, but Fitch believes that they will not pay for themselves or lead to a permanently higher growth rate,” the agency wrote in its evaluation.