In the summer of 2006, as President George W. Bush was pressing to make permanent the tax cuts he had pushed through Congress in 2001 and 2003, the Treasury Department published a so-called dynamic analysis that, the administration hoped, would prove the undoubted economic benefits of the extension.
But its conclusions didn’t draw much applause from the White House: In the long term, the Treasury’s Office of Tax Analysis found, the tax cuts would expand the economy by all of 0.7 percent. It never specified what it meant by “long term,” but on the assumption it means a couple of decades, the tax change would add 0.035 percent to annual economic growth over the period.
Math and economics have changed little since that exercise.
Treasury Secretary Steven Mnuchin insists that the tax overhaul passed by Republicans in the Senate this month would increase annual economic growth by 0.7 percentage points over the next decade.
But an analysis by Congress’s nonpartisan Joint Committee on Taxation projected less stellar results: In the course of 10 years, the tax cuts would make gross domestic product 0.8 percent larger. This amounts to increasing growth by 0.08 percent per year. On Monday, the Penn Wharton Budget Model chimed in with similar estimates: Under standard economic assumptions, G.D.P. would be 0.5 percent to 1.0 percent larger by 2027 than if tax rates hadn’t changed.
Apparently economic analysis does not always carry the day. Hoping to push their latest round of tax cuts into law, Republicans in Congress decided to ignore the dynamic analysis they once praised and follow their gut and their preferences instead.
Still, the evidence underscores a not-insignificant weakness in the Republicans’ longstanding economic platform: Tax cuts are not the secret sauce to power the American economy. They have, in fact, very little power to affect economic growth. However strenuously Republicans may argue that tax reform is about increasing economic efficiency, encouraging investment or promoting competitiveness, tax cuts are always primarily about redistribution.
