Economic growth would not pay for Senate tax cuts, analysis says

Key Points
  • Boosted gross domestic product growth would not pay for the tax cuts in the Senate Republican plan, the Penn Wharton Budget Model estimates.
  • Many Republicans have argued that increased economic growth will cancel out revenue lost by chopping taxes on corporations and individuals.
  • The bill would reduce federal revenues by between $1.3 trillion and $1.5 trillion.

The latest Senate tax plan would not spark enough economic growth to pay for sharp tax cuts, a new independent analysis projects.

The amended Senate GOP proposal would reduce federal revenues by between $1.3 trillion and $1.5 trillion in the decade through 2027, even with modestly stronger gross domestic product growth, the Penn Wharton Budget Model estimated Tuesday. U.S. debt would rise in a range of $1.4 trillion to $1.6 trillion in that period, driven by increased debt service, the analysis said.

CBO says House GOP’s tax bill adds $1.7 trillion to the deficit over the next decade

Many Republicans have argued that economic growth will either largely or fully cancel out the revenue lost by trimming the tax burden on corporations and individuals. GOP lawmakers like outgoing Sens. Jeff Flake, R-Ariz., and Bob Corker, R-Tenn., have expressed concerns about a bill significantly increasing budget deficits.

The Penn Wharton model estimates the Senate Republican plan will fall short of paying for itself.

The Senate bill as amended last week would temporarily cut many individual taxes, while permanently chopping the corporate tax rate to 20 percent from 35 percent. Individual changes expire to help the plan to comply with Senate budget rules.

While the GOP hopes to eventually extend individual tax cuts, the Penn analysis assumes they expire before 2027, as written.

The Senate proposal would cause GDP to rise 0.3 percent to 0.8 percent in 2027 relative to current law, the report estimates. It would be 0.2 percent to 1.2 percent higher by 2040, it adds.

In 2040, U.S. revenues would fall by $1.1 trillion to $2.1 trillion, while debt would climb by $1.7 trillion to $2.4 trillion, the Penn model projects.

The congressional scorekeeper, the Joint Committee on Taxation, has separately estimated that the Senate bill would increase deficits by $1.4 trillion over a decade.

Last week, the House passed a similar tax bill, which would not make individual tax changes expire. The Senate hopes to pass its version next week.

Once both chambers pass a bill, they have to reconcile the proposals before they can approve final legislation to send to President Donald Trump.

Republicans hope to pass a tax bill before the end of the year.

WATCH: Austan Goolsbee on the tax cut

Don't ask middle class to pay for corporate tax cut. It doesn't make any sense: Austan Goolsbee