New Estimates Confirm Economic Growth Won’t Pay for Tax Cuts
The latest estimates from third-party modelers confirm what we’ve said several times before: economic growth will not pay for tax cut extensions.
New estimates from the Tax Foundation and Tax Policy Center (TPC) show that extending the portions of the 2017 Tax Cuts and Jobs Act (TCJA) that either have expired, are phasing down, or will expire at the end of 2025 will not produce nearly enough economic growth to offset their revenue loss. The Tax Foundation’s estimate is the most optimistic, with dynamic gains projected to offset up to 16 percent of conventional revenue losses, while TPC finds that dynamic gains could offset 6 percent of conventional revenue losses.
Dynamic Feedback Estimates of TCJA Extension (ten years, billions)
| Conventional Estimate | Dynamic Estimate | Total Dynamic Feedback | % Dynamic Feedback | |
|---|---|---|---|---|
| Congressional Budget Office*' | $3,700 | ~$3,760 | -$60 | -2% |
| Joint Committee on Taxation' | $3,368 | $2,996 | $372 | 11% |
| The Budget Lab at Yale' | $2,816 | $2,801 | $15 | 1% |
| Tax Foundation | $4,506 | $3,796 | $710 | 16% |
| Penn Wharton Budget Model | $4,011 | $3,834 | $177 | 4% |
| Tax Policy Center | $3,973 | $3,751 | $222 | 6% |
| Pomerleau-Schneider | $3,817 | $3,635 | $182 | 5% |
* The Congressional Budget Office’s latest figures do not include an explicit estimate of the dynamic effect of TCJA extension, but their economic estimates imply a possible slightly negative effect that we’ve estimated here. CBO’s estimates incorporate interest rate effects.
‘ These estimates do not include extension of expiring or expired business provisions.
The recent budget resolution adopted by the House of Representatives intended to facilitate TCJA extension through reconciliation assumed $2.6 trillion of economic feedback through Fiscal Year (FY) 2034 largely from growth assumed by the tax cut extension. That amount of feedback is more than three-and-a-half times the most optimistic estimate (Tax Foundation) and 11 times the average feedback of $231 billion.
As policymakers consider extending elements of the TCJA, they should be realistic about the maximum dynamic feedback from extension. Tax cuts generally do not pay for themselves. It is therefore critical that policymakers fully offset the revenue loss from extension in order to ensure it will not add to the already unsustainable national debt.
