Tax-cut debt might impose painful price

WASHINGTON— When House Republicans proposed their tax-cut plan last week, critics noted that it came with a towering price: It would swell the nation’s debt by $1.5 trillion at a time when the economy is already faring well on its own and a vast generation of retiring baby boomers threatens to strain the Social Security and Medicare programs.

President Donald Trump and Republicans in Congress argue that their plan, which would shrink the corporate tax rate and end taxes for most wealthy estates, would accelerate economic growth. It would do so, they say, by leaving more aftertax money for businesses to invest and to increase pay for their employees, who would then spend more and help invigorate the economy.

Kevin Hassett, chairman of the White House Council of Economic Advisers, has contended that the proposal to cut the corporate tax rate to 20 percent from 35 percent could, by itself, enlarge the economy by up to $1.2 trillion over the long run and eventually add $4,000 a year to average household income. Those claims were promptly dismissed as wildly optimistic by Democrats and many economists.

Adding to the government’s debts poses risks, too: More debt could drive interest rates up as the government competes with private borrowers for credit. It could also eventually require cuts to popular spending programs. And it might leave policymakers with less ammunition the next time a recession strikes.