By Damian Paletta & Max Ehrenfreund
The Washington Post
The Trump administration plans to rely on controversial assumptions about economic growth to offset steep cuts to tax rates, a chief architect of the plan said Thursday.
Treasury Secretary Steven Mnuchin said the economic growth that would result from the proposed tax cuts would be so extreme - close to $2 trillion over 10 years - that it would come close to recouping all of the lost revenue from the dramatic rate reductions. Some other new revenue would come from eliminating certain tax breaks, though he wouldn't specify which ones.
"The plan will pay for itself with growth," Mnuchin said at an event hosted by the Institute of International Finance.
Assuming economic growth based on changes to the tax code is known as "dynamic scoring" and many conservatives embrace its use when arguing for lower rates. But estimating the future economic impact of tax cuts is very difficult to do, as it requires policy makers to rely on economic forecasts that are often imprecise.
And even if the White House has rosy estimates about the economic impact of their tax cuts, they could run into trouble as any plan moves through Congress. That's because Congress relies on tax analyses performed by the Congressional Budget Office and the Joint Committee on Taxation, which tend to have a more restrained view on the macro-economic impact of tax cuts.
President Donald Trump believes the tax code is too complicated and tax rates are too high, and he has made overhauling the tax code one of his top priorities. But simply lowering the rates businesses pay and individuals pay is difficult for lawmakers because of congressional budget rules. Most Democrats won't support a tax plan that simply cuts tax rates and Republicans have a narrow advantage in the Senate.
To pass a tax plan along party lines, they have to ensure it won't grow the deficit beyond the first 10 years. That requires them to find new revenue to offset what they will lose by cutting rates.
The White House's tax plan must win support in the House and Senate before it can become law.