Corporate rate ‘rocket fuel’ said to pay for itself

WASHINGTON — Speaking to a group of workers recently in Harrisburg, Pennsylvania, President Donald Trump said his proposed tax cut package “will be rocket fuel” for the economy.

It was Trump’s sly way of reinforcing a message that the White House has sent since it first rolled out a framework for the tax cut in April. The message: Instead of adding to the $20 trillion national debt, the GOP tax cut will pay for itself. There’s no need to produce some $5 trillion in savings over the next decade to pay for the cuts.

The current package would lower the corporate tax rate from 38.9 percent to 20 percent and lower personal income taxes; the top rate would fall from 39.6 percent to 35 percent. That should mean a bigger deficit, right?

No, supporters maintain, because the package would eliminate a number of deductions and that would broaden the tax base and generate some new revenue. The rest would come from growth as corporations, spurred by tax cuts, buy more equipment and hire more workers.

The Committee for a Responsible Federal Budget supports tax reform but has observed that tax cuts in 1981 and the early 2000s widened deficits and figured that for every dollar in cuts, economic activity would have to produce $5 to pay for itself. Don’t hold your breath on that score.

“I think that very few economists would agree that the revenue loss would be fully offset with revenue growth,” budget expert Alan Viard of the right-leaning American Enterprise Institute told The Hill.

Two caveats

The Tax Policy Center estimated that the framework would reduce revenue — read: add to the deficit — by $2.4 trillion in its first 10 years.

There are two caveats that go with any estimate. The first is that the plan drafted by GOP leaders offers few details. While the nine-page framework boasts three new tax rates — 12 percent, 25 percent and 35 percent — it does not delineate what the tax brackets would be.

The second caveat is that it is not clear or even likely that Congress will stick with provisions that would remove tax deductions, like the deduction for state and local taxes, in order to finance lower tax rates. The state and local deductions add up to $1.3 trillion over a decade, according to the Joint Committee on Taxation. Already the pressure is on lawmakers from high-tax states like New York, New Jersey and Maryland to refuse to support the package