WASHINGTON -- The Concord Coalition expressed concern with President Trump’s new tax plan today, saying the administration has not shown how it could be financed without substantially increasing the federal debt.
“While the proposal lacks specificity, what was released today looks like a revenue loss plan more than a tax reform plan,” said Robert L. Bixby, Concord’s executive director. “It is inconceivable that a tax cut of this magnitude could pay for itself through economic growth.”
He added: “While the administration suggests it will eliminate most tax deductions -- a positive goal -- that would likely not be enough to offset the tax cuts Trump is proposing. The net result would be higher debt and thus a limit on any economic growth gains the administration hopes to get from tax reform in the first place.”
Tax deductions, preferences and exclusions -- often called “tax expenditures” -- make the tax system more inefficient, complex and regressive. Limiting or eliminating them is an essential step in creating a pro-growth tax reform.
Yet this plan also exempts at least three of the largest tax expenditures -- the deductions for home mortgage interest and charitable contributions, plus tax-preferred retirement savings incentives. That, combined with the proposed increase in the standard deduction (which is already claimed by 70 percent of income-tax filers), would severely limit any potential revenue gains.
The administration has yet to present a full budget plan for the coming fiscal year and beyond. Instead, Trump released a partial spending plan in March that just covered appropriations for one year. The administration has promised to release additional information later.
“Tax reform is a worthy goal,” Bixby said. “There is a rare bipartisan consensus that the tax code is too complicated and economically inefficient. Fixing that problem, however, cannot be considered in isolation from the fact that current fiscal policy is already on an unsustainable path. The tax code, whether reformed or not, needs to bring in sufficient revenue to keep that problem from getting worse. It makes no sense to pursue major tax changes without knowing what the overall spending plan is, and given the huge potential revenue loss from the president’s proposals, it would certainly not be the fiscally responsible thing to do.”
As Congress and the administration continue to work out the details of their tax plans, it will be essential that their budget and economic estimates follow recent bipartisan convention and be based on standard economic models and theory. Only by doing so can they and the American people understand the impact of the proposed tax policies.
Furthermore, policymakers should not rely on budget gimmicks to make their plans look better or to get around congressional rules and procedures. Particular attention needs to be paid to how the tax plans handle overseas business-income repatriation. This often scores as a revenue-raiser within the 10-year budget window but loses revenue after that.