Claims of Large Growth Effects from Trump Tax Plan Merit Skepticism

The revised tax plan that Republican presidential nominee Donald Trump released today will be very costly, though less than the plan he released last year.  Based on the Trump campaign’s own cost estimates, the cost appears to be roughly comparable as a share of the economy to that of the very large Reagan tax cuts of 1981 and Bush tax cuts of 2001 — before policymakers rolled them back, in part due to their high cost and the pressure they placed on budget deficits.

The Trump campaign claims that a substantial part of the reduction in the plan’s cost is due to the large boost to economic growth.  But, in addition to some cost-reducing policy changes, Trump advisors point to estimates they have derived from Tax Foundation work to claim that the plan will produce unusually large “dynamic” effects on economic growth and revenues.  Those claims merit skepticism, as two CBPP reports explain.

• Trump Campaign’s “Dynamic Scoring” of Revised Tax Plan Should Be Taken with More Than a Grain of Salt (released today)

  . . . [T]he Tax Foundation model generates far larger economic and budgetary effects than the models of the Congressional Budget Office and Congress’s Joint Committee on Taxation, and relies on assumptions that are inconsistent with the economic evidence or well outside mainstream economic thinking.  All dynamic budget estimates should be approached with caution.  That admonition applies with particular force to the highly questionable dynamic estimates that the Tax Foundation model produces. 

• Kansas’ Tax Cut Experience Refutes Economic Growth Predictions of Trump Tax Advisors

  [T]hose who will evaluate the revised Trump tax cut proposal should keep something in mind:  [Trump advisors Stephen] Moore and [Arthur] Laffer were principal architects of Kansas Governor Sam Brownback’s massive tax cuts, and their predictions that those tax cuts would spur an “immediate” Kansas economic boom have proved strikingly inaccurate. . . .

• Since [the tax cuts] took effect in January 2013, total employment in Kansas has risen only 2.8 percent, compared to 6.7 percent nationally. . . .
• The state’s economy has grown less than half as fast as the national economy. . . . 
• Kansas’ share of newly opened business establishments in the United States has actually declined slightly rather than increased.