The Republican economic agenda will generate enough growth to pay for tax cuts being hammered out on Capitol Hill this week, the U.S. Treasury said Monday.
The Treasury said a combination of tax cuts, regulatory reform, welfare reform, and infrastructure development would change the long-run annual growth rate from a previous assumption of 2.2 percent to 2.9 percent. That forecast comes from the Trump administration’s budget.
That additional growth would generate more than enough revenue to pay for the tax cuts. Over a ten-year period, the move from 2.2 percent growth to 2.9 percent growth would generate $1.8 trillion in additional tax revenue, enough to cover the $1.5 trillion in tax cuts with $300 billion left over. This means that even if the tax cuts sets to expire in 2025 under the GOP proposals were made permanent or extended, there still would be no additional debt created by the tax overhaul.
About half of the expected additional growth would come from changes to the corporate tax code, in Treasury’s estimation. Lower taxes on businesses are expected to increase capital investment, which would put upward pressure on gross domestic product. The other half would come from lower-taxes on pass-through businesses, lower regulations, and increased infrastructure spending.
While Treasury’s estimate of 2.9 percent growth is well above that of most mainstream forecasters, it is below the growth rate achieved in the last two economic quarters. The economy has been out-performing most economists expectations since Donald Trump took office.
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