Economists Agree: Trump’s Tax Cuts Won’t Pay for Themselves
Policy + Politics

Economists Agree: Trump’s Tax Cuts Won’t Pay for Themselves

CARLOS BARRIA

At a conference of policymakers and financial industry executives last month, Treasury Secretary Steven Mnuchin said that the nascent Trump tax plan, which consists mostly of individual and corporate tax cuts, “will pay for itself with growth.”

Economists surveyed by the University of Chicago’s Booth School of Business say otherwise. The survey, published last week, reported that 35 of the 37 economists who responded said they disagreed or strongly disagreed with the idea that the tax plan “would likely pay for itself through higher economic growth.” And it turns out, as Max Enhenfreund of The Washington Post reported Monday morning, that the two economists who supported Mnuchin’s claim “now both say they made a mistake, and that they misunderstood the question.”

Oops.

“I meant to say that this is a horrible idea, a bad idea — no chance in hell,” Stanford’s Kenneth Judd said.

Related: How Trump’s Tax Plan Could Make the ‘Hedge Fund Guys’ Even Richer

With those two votes corrected, the Booth School’s updated tally to the survey question shows seven economists who disagree that the plan would pay for itself, 30 who strongly disagree and five who did not answer.

Even economists who support the plan have trouble with Mnuchin’s claim. In an op-ed in The Wall Street Journal Monday, economist Edward P. Lazear of the conservative Hoover Institution (and a former chairman of the Council of Economic Advisors under president George W. Bush) argues that the Trump plan would boost growth and “generate a GDP gain of between 2.5% and 4.5%” based on previous estimates of the effects of switching from taxing capital to purely taxing consumption. But Lazear says the claim that the tax cuts will pay for themselves is “less certain” — though he adds that “revenue neutrality should not be the standard by which a tax plan is judged.”

“Unless we are willing to accept major tax increases in the future—most likely through the introduction of a VAT—we will need to reduce government spending significantly to narrow the gap,” Lazear writes. “This means re-examining entitlements, particularly Medicare, Medicaid and other health programs. Even a revenue-neutral tax reform plan would not come close to achieving fiscal responsibility.”

Other economists may disagree on the need to cut entitlement spending, but the consensus on Mnuchin’s claim is pretty clear.

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