Rosy’s White House tax cut forecast collides with independent analysis

© Reuters. People listen as US President Donald Trump speaks about tax reform in Harrisburg, Pennsylvania

By David Morgan and Saqib Iqbal Ahmed

WASHINGTON / NEW YORK (Reuters) – The White House on Friday promoted President Donald Trump’s tax cut plan with a forecast of faster economic expansion and wage growth in the United States, as independent analysts said the plan would increase. the budget deficit and would provide little spark to the economy. .

Rival projections reflected the many unknowns surrounding the plan, which is expected to be released legislatively on Wednesday. Republicans were still undecided on some of the hardest parts, such as how to pay for the costly proposed cuts.

There are weeks and possibly months of debate ahead for a project that Trump promised to tackle in his 2016 election campaign. In September, he unveiled a rough framework for cutting taxes. Now he wants Congress to pass a bill, which would mark his first major legislative victory, before the end of the year.

Trump’s plan for tax cuts of the kind normally reserved for times of economic recession is taking shape in Congress amid signs that the economy is already growing rapidly.

Gross domestic product rose at an annual rate of 3 percent in the July-September period, supported by strong business spending on equipment, the Commerce Department said on Friday.

The economic recovery that began under former President Barack Obama after the 2007-2009 recession is in its eighth year and shows few signs of fatigue amid a tight labor market.

“It’s hard to say that we need tax cuts at the individual level … you don’t need to provide more fiscal stimulus when the economy is already strong,” said Bernard Baumohl, global chief economist at the Economic Outlook Group in Princeton, NJ.

In the face of improving economic prospects, Republicans have shifted their rhetoric on tax cuts from getting the economy moving again to keeping it on an expansionary path.

An analysis published by White House economic adviser Kevin Hassett said that it would dramatically lower the top federal corporate tax rate and allow companies to immediately write off the full cost of most equity investments, as proposed in the plan. , it would generate faster growth and higher wages.

Hassett’s projections called for a 3 to 5 percent increase in GDP that, in 10 years, could represent between $ 700 billion and $ 1.2 trillion in economic output.

But the Tax Policy Center, a Washington nonprofit think tank, released an analysis that concluded that Trump’s tax plan would not produce a significant and permanent economic boost.

The group said the plan would reduce federal tax revenue by approximately $ 2.4 trillion over the next decade and more than $ 3 trillion in the following decade, significantly increasing the United States’ national debt, which is already over 20. , 4 trillion dollars.

The center said Trump’s tax cuts would spur new activity at first, but the impact would be mitigated in later years by rising deficits, forcing more federal loans to fund tax cuts and raising taxes. Loan costs for the private sector.

Hassett told reporters that he does not expect the tax reform to significantly increase the deficit. But he admitted that it would become “a big negative” if economic growth did not materialize and the level of debt soared.

The framework of Trump’s plan introduced last month called for reducing the corporate tax rate to 20 percent from 35 percent, the small business rate to 25 percent from to 39.6 percent, and the maximum individual rate to 35 percent from 39.6 percent.

He also specifically called for the repeal of the estate tax on inheritances and the alternative minimum tax, which are generally paid by people with the highest income in the country.

Less clear were the plan’s proposals to reduce the number of tax brackets, improve the child tax credit, and possibly put new limits on popular 401 (k) retirement plans.

Because the details of the unfinished tax legislation are unknown, its economic impact is unclear, said Omer Eisner, chief market analyst at the Commonwealth Foreign Exchange in Washington.

Hours after the Commerce Department reported stronger-than-expected 3 percent third-quarter economic growth. Hassett said the data did not undermine the need for tax cuts.

He said economic expansion and stronger stock market performance could be undermined if the Republican-controlled Congress does not enact the tax cuts.

“Companies are optimistic both about regulatory reform and because they expect corporate tax reform and general tax reform,” Hassett said. “What worries me is that if those expectations turn out wrong, then I would expect corporate capex to return to a disappointing trajectory and equity markets to fall as well.”

Kevin Brady, chairman of the US House of Representatives tax committee, said that progress is being made toward satisfying Republicans who have withheld support for the tax plan because it could end up with a state and local tax deduction. “I’m hopeful … we can find a good solution for them,” Brady said.