Memo: CEA’s Flawed Analysis Does Not Show TCJA Extension Would Produce 3% Growth

Summary Points

• The estimates from the Council of Economic Advisors (CEA)¹ imply TCJA extension would boost average annual GDP growth to 2.1 percent, not 3.0 percent. 3 percent growth is an unfounded assertion, not an estimate.
• CEA’s estimates of TCJA’s economic impact would result in about $1.2 trillion of dynamic feedback, not $4.1 trillion, and thus would not pay for itself.
• CEA’s estimates of the effects of TCJA on growth are three times as high as the rosiest independent estimate (Tax Foundation), and eight times the average credible estimate.
• CEA’s memo misinterprets historic data and existing research on TCJA’s effects.
• CEA asserts the combination of TCJA and other policies will boost annual GDP growth to 3 percent – a two-thirds increase – with little detail and no evidence on how the policies will lift average growth beyond 2.1 percent to 2.3 percent.

CEA’s TCJA Growth Estimates Are Too Low to Get to 3% and Still Too High to Be Credible

• CEA estimates that extending the TCJA would boost long-term GDP by 2.6 to 3.2 percent, which implies a 3 percentage point increase in the annual growth rate.²
• If added to CBO and Federal Reserve projections of 1.8 percent annual baseline growth, this would boost economic output to 1 percent per year.
• CEA’s estimated increase is eight times as large as the average from six credible modelers, and roughly three times as large as the highest estimate, from the Tax Foundation.
• Credible estimates find the economy would grow by 1.8 to 1.9 percent per year, assuming extension of the tax cuts, not 2.1 or 3.0 percent.

• Among other flaws, CEA’s estimates do not appear to account for the negative economic effects of higher debt, which CBO and others find will counter and ultimately outweigh the positive economic effects of tax cuts over the long run.

CEA’s Growth Estimates Show Tax Cuts Won’t Pay for Themselves

• CEA’s estimates of short- and long-term economic growth imply the economy will be more than 3 percent larger than projected, on average, over the next decade.
• Using CBO’s “economic workbook,” this higher output would likely generate about $1.2 trillion of dynamic feedback, covering about 30 percent of the deficit impact from TCJA extension.³
• CEA’s feedback estimate is nearly six times as large as the average of credible outside models.
• Other credible estimates find extension would generate -$60 billion to $710 billion of dynamic feedback, covering -2 to 16 percent of TCJA extension deficit impact.

CEA’s 3% and $4.1 Trillion Claims Are Assertions, Not Estimates

• CEA claims the economy will grow by 3 percent due to TCJA extension and other policies but does not provide evidence or detail on how this will be achieved.
• Based on CEA’s estimate of TCJA extension, non-tax policies would need to increase growth by over 40 percent – from 2.1 to 3.0 percent per year.
• CEA claims that regulatory reform could add 0.1 to 0.2 percent to the growth rate, but this is largely based on changes already made in the first Trump Administration (some were undone in the Biden Administration) and would still leave the growth rate far short of 3 percent.
• CEA ignores the Trump Administration’s tariff-related policies, which economists almost universally agree will reduce GDP – at least in the short and medium term.
• While it is true that 3 percent growth could plausibly generate an additional $4.1 trillion in revenue, CEA has provided no evidence that their agenda will achieve 3 percent growth.

CEA Offers Flawed Analysis of the 2017 Tax Law

• While CEA claims TCJA boosted real GDP by 2.5 percent by the end of 2019, roughly three-quarters of that improvement was unrelated to TCJA and was anticipated by CBO in early 2018 due to upward revisions to pre-TCJA real GDP, improvements in data and methods unrelated to TCJA, lower inflation than projected, and economic stimulus from the Bipartisan Budget Act. Notably, nominal 2019 GDP did not deviate from CBO’s pre-TCJA 2017 projection.
• While CEA claims TCJA boosted real wages by $4,992 per person, they offer no analysis to support this claim. Their estimates simply assume that all wage growth from January 2017 through December 2019 was due to the TCJA and therefore take credit for wage growth from before TCJA was passed and wage growth that would have happened regardless.
• CEA cites research with findings counter to their claims. For example, they favorably cite Chodorow-Reich, et al. (2024), which does find that the original TCJA increased business investment. However, they stress that this only paid for 5 percent of the corporate tax cut.
• Original projections that the TCJA boosted output modestly and paid for about one-fifth of itself have been largely validated by subsequent research.
• Adjusted for inflation, actual revenue has closely matched CBO’s post-TCJA projections, except for a one-time temporary revenue surge in 2022 due to the pandemic and inflation.

1 This memo is in response to Council of Economic Advisers, “The Economic Impact of Extending Expiring Provisions of The Tax Cuts and Jobs Act.” April 2025. https://www.whitehouse.gov/wp-content/uploads/2025/03/Economic-Impact-of-Extending-TCJA-Provisions.pdf

2 CEA estimates TCJA extension would boost GDP by 3.3 to 3.8 percent in the first year and 2.6 to 3.2 percent in the long run. We assume the “long run” is reached by 2035. We also assume a linear phase in from the first year to the long run effect. Because the effects are similar in magnitude, a different phase in or different definition of long run would not meaningfully change our results, unless the “medium run” impact was either substantially lower or substantially higher than either the short or long run outcome. Our estimates also assume the midpoint of CEA’s range.

3 This estimate includes the likely effect of stronger economic growth on interest rates and therefore interest costs. Economic feedback would be somewhat larger without this effect, but meaningfully smaller if estimates also included the effect of higher debt on higher interest rates and costs.