Steve Moore of the Committee to Unleash Prosperity said “Trump economist Kevin Hassett was right — “Thanks to the booming economy, Trump’s tax cuts are well on the way to paying for themselves. The Laffer Curve is at work!” Below is his latest Wall Street Journal piece debunking the liberal myth that the Tax Cut and Jobs Act is blowing up the deficit. The following commentary appeared in the Wall Street Journal on 9/19/18.
The Corporate Tax Cut Is Paying for Itself
Faster-than-expected growth has produced a revenue windfall.
Kevin Hassett, chairman of President Trump’s Council of Economic Advisers, caused a brouhaha by claiming last week that the corporate tax cut enacted last year has “about paid for itself.” I told Bloomberg it is a little premature to say that, and critics have asserted that even a Trump economic adviser disagrees with Mr. Hassett. But I’ve looked more closely at the numbers, and it turns out he is almost entirely right.
Compare the August 2018 economic forecast from the Congressional Budget Office with the one from June 2017, before the tax cuts passed, and we discover some very good news. The much higher than expected economic growth in the wake of the Trump tax cut means that U.S. gross domestic product will be higher than expected every year over the next decade.
Even if we assume a reversion to the pre-Trump 1.9% growth path, the ratchet up in GDP this year translates into $179 billion in unexpected output this year, $465 billion next year, $654 billion in 2020, and so on. This magic of compounding yields more than $6 trillion additional GDP over the decade thanks to the faster growth already achieved.
The federal government is expected to capture a bit more than 18% of that extra output in tax revenue—about $1.1 trillion over the 10-year window. That’s well above the $400 billion to $500 billion expected revenue loss from the corporate tax-rate cut.
Corporate tax revenues are down this year, but receipts from nearly every other tax source are rising at the federal and state levels. The higher growth this year alone will give states and cities almost $20 billion in windfall revenue. No surprise then that many states are reporting “unexpected” gains in tax collections this year and will have budget surpluses.
Perversely, because the economy is bigger now than expected, the CBO has revised upward its estimated “cost” of the tax cut. Because of lower tax rates, the government will get a smaller share of the larger-than-projected economy—even though the tax cut encouraged the faster growth.
One can argue about how much of the boom is a result of the corporate tax cut. My view is that the small-business tax cuts also have helped, as have deregulation and pro-energy-production policies.
The results we are seeing are perfectly consistent with the original game plan. We always believed that creating jobs and elevating growth from 2% to 3% or 4% should be the major focus of the economic revitalization strategy. Faster growth would make every other national problem—poverty, stagnant wages, funding Social Security, even drug abuse—easier to solve. Certainly the national debt is less frightening with $6 trillion more GDP.
This is the growth dividend we all hoped for when designing the tax cut. Although it is still early in the game, so far things are going even better than we expected.
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