GOP tax cuts will not pay for themselves, add 'significantly' to US debt: Fitch report

Key Points
  • The Republican tax cuts will add "significantly" to U.S. debt in the next decade, Fitch Ratings said.
  • The agency says the GOP cuts will not pay for themselves through growth.
  • Republicans backing the bill have contended the plan will boost the economy and cancel out most or all of the deficit increase over time.

The proposed Republican tax cuts will not pay for themselves through growth, and add "significantly" to the long-term United States debt, Fitch Ratings said in a Tuesday report.

The estimates from the credit rating agency undercut a key argument of the GOP bill: that chopping tax rates will spark major economic growth and cancel out most or all lost revenue.

The Tax Cuts and Jobs Act, which the House aims to pass as early as next week, cuts the corporate tax rate from 35 percent to 20 percent, while moderately reducing household income tax rates. It changes some popular provisions such as the mortgage interest deduction, but leaves others like the 401(k) tax benefit unchanged.

GOP lawmakers are allowing for the bill to add up to $1.5 trillion to the federal deficit over a decade. But they argue that economic growth will boost tax revenues over time, making up for that gap.

Fitch contradicted those assumptions. It revised its medium-term debt forecast higher because it expects that Congress will pass some version of the bill.

In its report, Fitch said the tax cuts "may lead to a short-lived boost to output." However, they "will not pay for themselves or lead to a permanently higher growth rate," according to the agency.

"Fitch believes the tax package will be revenue negative, even under generous assumptions about its growth impact," the report said.

The U.S. federal debt was 77 percent of gross domestic product at the end of the last fiscal year. Fitch expects it to rise to 120 percent of GDP by 2027 "under a realistic scenario of tax cuts and macro conditions."

On Sunday, House Speaker Paul Ryan told Fox News that he was "absolutely convinced" the proposed cuts would help to grow the U.S. economy.

The White House's chief economic advisor, Gary Cohn, has gone as far as saying GOP tax cuts will be paid for entirely through economic growth.

However, House Ways and Means Committee Chairman Rep. Kevin Brady on Monday said economic growth from tax cuts "alone won't get us back to a balanced budget."

A House Ways and Means Committee spokesperson on Tuesday said the current bill meets the requirements set out in the budget passed by the House and Senate. It will boost growth and generate additional revenue in the coming years, the spokesperson said.

The White House did not immediately respond to a request for comment on the Fitch report.