The White House lauded a Congressional Budget Office analysis of its fiscal 2018 budget proposal, framing it as a vindication of its fiscal policy agenda, even though the CBO essentially disregarded the budget’s broad assumption of deficit-neutral tax reform.
The report issued July 13 concluded that President Trump’s budget plan would reduce the deficit by $3.28 trillion over a decade relative to current law, though that estimate does not include any economic or budgetary effects from the president’s tax reform proposals. This is because the CBO assumed for now that there would be no net effect, operating under the premise that “current laws governing federal outlays and revenues will remain generally unchanged.” Trump’s budget, released May 23, assumed that tax reform would be revenue-neutral.
Office of Management and Budget press secretary Meghan Burris told Tax Analysts in a statement that the administration is “thrilled” by the CBO’s findings on deficit reduction. “History has taught us that the pro-growth policies that President Trump supports . . . will jumpstart the economy,” she wrote.
According to the report, macroeconomic feedback from reducing the deficit would save an additional $160 billion over a 10-year period, which would bring the total estimated deficit reduction to $3.44 trillion over a decade.
That is substantially lower than what the White House projected. The White House proposal estimated that it would balance the federal budget and reduce the deficit by $6.8 trillion over 10 years, a difference the CBO attributed almost entirely to the different economic forecasts used by the two institutions. The White House projected it would raise $3.6 trillion more in revenue from changes in economic activity than the CBO did, according to the report.
Overall, the report found that many of the economic and budgetary effects of Trump’s plan could not be modeled because of a lack of specificity thus far in Trump’s policy proposals. For many of the White House’s assumptions on budgetary effects, the CBO used the administration’s estimates as a “placeholder” when those estimates were judged to be “achievable targets.”
However, a few of the president’s tax proposals did get attention from the CBO. A proposal requiring taxpayers claiming the earned income tax credit and child tax credit to have a work-eligible Social Security number would increase revenues by $5 billion, the report says. Meanwhile, proposed cuts to the IRS’s enforcement budget and a proposal to convert the Federal Aviation Administration’s air traffic control system into a private entity funded by user fees would reduce revenue by $19 billion and $10 billion, respectively.
Even without scoring changes from tax reform, the CBO found that the White House budget proposal would reduce revenue by $894 billion over a decade, largely because of proposals to repeal and replace various Affordable Care Act taxes. The agency also adopted the administration’s assumption that healthcare reform would generate $1.25 trillion in savings through spending cuts over a 10-year period. The report notes that “many other budgetary outcomes are possible, however, depending on the specific policies adopted.”
“Trump could introduce a tax reform plan that grows the economy and helps bring the budget further into balance in subsequent CBO analyses, but that would also require [the White House] to spell out a large number of details they have yet to articulate, most obviously base-broadeners,” according to Kyle Pomerleau of the Tax Foundation. “Without them, the tax plan would make the budget fall even farther from balance and would likely result in slower growth according to CBO.” He added that the CBO “tends to think deficits crowd out private sector investment and slow the economy” — an assumption also reflected in a July 12 analysis of Trump’s tax reform proposals by the Urban-Brookings Tax Policy Center.
‘Taxes Are Gonna Be Easy’
Trump also weighed in on his tax reform plans during an interview aired July 13 on the Christian Broadcasting Network’s The 700 Club. The president contended that after Congress concludes deliberations on healthcare reform, “taxes are gonna be so easy, really.”
Tax “is simpler than healthcare, believe it or not,” Trump told CBN founder Pat Robertson.
Pomerleau offered a more restrained assessment of that claim, saying that “tax reform will be challenging, but worthwhile.” Pomerleau explained in an email that, “just like healthcare, lawmakers need to make a number of tradeoffs that may pit certain groups against one another. We have already seen a preview of this with the border adjustment debate.”
“Of course, in taxes you could simply cut taxes, make the bill temporary, and call it a day, but that would not provide the economic growth that Trump is looking for,” Pomerleau added.
Asked by Robertson if his administration would “get past” the CBO’s use of static rather than dynamic scoring, Trump said it would because of economic growth. “We’re gonna get past it, and we’re gonna get past it to a large extent because we’re gonna have a country that’s going to be much more dynamic,” Trump said.
Trump said that once the GOP can finally get the tax cuts they’re working towards, “we’re gonna have tremendous growth.” The president cited his administration’s ambitions for a massive middle-income tax cut, appearing to suggest extending a proposed 10 percent bottom rate to middle-income individuals.
“We’re gonna give a tremendous tax cut for the middle class,” Trump said. “We’re bringing it down to 10 percent. We’re bringing corporate taxes down to 15 percent. I hope we can get that number approved.” He added that if the administration gets “what we want, it’ll be the biggest tax cut and the greatest tax reform in the history of our country,” Trump continued.
The White House tax plan, released April 26, summarized individual reform as, “Tax relief for American Families, especially middle-income families.” It set three tax brackets for individuals: 10, 25, and 35 percent.
In an email, a White House spokeswoman said, “We are not at the point of enumerating what the income levels for those brackets are.” Whether Trump wants a 10 percent rate for middle-income taxpayers and how he defines them in that context remains unclear.
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