Putting Numbers to TCJA Dynamic Feedback Estimates
As we have pointed out before, extending the various individual and estate tax provisions of the Tax Cuts and Jobs Act (TCJA) beyond their scheduled expiration at the end of 2025 is unlikely to boost economic growth enough to cover the full deficit impact of extension or come anywhere close to doing so.
Modelers from the left and right as well as the official nonpartisan estimators have found that dynamic economic feedback from TCJA extension will cover up to 14 percent of the deficit impact of unpaid-for extension, which translates to up to $581 billion in dynamic feedback over the coming decade assuming no additional offsets. On the low end of the spectrum – according to an estimate that finds the negative effects of the increase in debt from unpaid-for extension will ultimately outweigh the positive growth effects – dynamic feedback could add $60 billion to the deficit impact.
Importantly, even the most optimistic estimate of dynamic feedback – from the Tax Foundation – assumes extension of additional business tax provisions, which have larger economic growth effects than the individual and estate tax provisions. Adding these policies increases the size of the conventional estimate as well.
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+ | $4,047 | $3,466 | $581 | 14% |
| Penn Wharton Budget Model+ | $4,011 | $3,834 | $177 | 4% |
| 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.
+ These estimates do include extension of expiring or expired business provisions.
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.
