In an interview with Fox News that aired Sunday morning, President Donald Trump suggested that he is not interested in figuring out how to pay for tax reform, instead insisting that “massive” tax cuts will spur enough economic growth to pay for themselves.
President Trump still thinks tax reform will pay for itself
Economic growth “more than pays for everything,” he said in an interview that aired Sunday on Fox News.
Rick Kern/Getty Images
“If we pick up one point on GDP, that’s $2.5 trillion … it more than pays for everything,” he told Maria Bartiromo on her show Sunday Morning Futures:
In this statement, Trump is making a big bet: that the economy will grow so fast in the next few years that the government will get tons of extra tax revenue to offset the money lost from cutting taxes. (The latest Republican tax plan involves cutting the corporate tax rate from 30 to 20 percent.)
The problem is that economists aren’t that optimistic. Last month, the Federal Reserve adjusted its economic forecasts, and expects the economy to grow more slowly in the coming years than it is right now (down to 2.1 percent in 2018 and to 2 percent in 2019, compared to the 2.4 percent average expected for 2017). In other words, Trump’s hope that the economy will instead grow at a rate of 3 or 4 percent — and fill the government’s coffers with an extra $2.5 trillion dollars — is unlikely.
Whether or not tax cuts should add to the deficit is a source of tension right now among Republicans in Congress as they prepare to pass a budget. The Senate seems much more inclined to let tax cuts add to the deficit; House Republicans want it to be offset with spending cuts.
Because Republicans plan to pass tax reform with only a slim majority (and no Democratic votes), they have to adhere to strict budget reconciliation rules. Their bill cannot add to the deficit beyond 10 years. To do so, first they have to pass a budget.
In July, the House passed its own version of the budget, which would allow a tax bill to increase the deficit by $2.5 billion in 10 years and mandates a total of $203 billion in spending cuts across 11 committees — which would likely come from programs like Medicaid and food stamps.
On Thursday, Senate Republicans passed their own version. It’s quite different. As my colleague Tara Golshan explains:
Instead of focusing on making cuts to reduce the deficit, like the House did, the Senate’s budget allows for a $1.5 trillion increase to the deficit over the next 10 years. In other words, it gives Republicans the freedom to make deep tax cuts without having to pay for them.
Before both chambers pass a budget, they need to figure out if they want tax reform to add to the deficit or find ways to offset the cuts. They could do this by cutting spending, closing tax loopholes, or eliminating certain tax breaks.
On Sunday, Trump insisted that Republicans would figure it out, and that cutting taxes would be “easier” than repealing and replacing Obamacare.
He said that he plans to sign a tax bill by Christmas, though he expects it to happen much, much sooner.
“I would be very disappointed if it took that long,” he told Bartiromo.
