Critics Skeptical of Hyped GDP Rise From Republican Tax Plan

For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By Aaron E. Lorenzo

July 21 — Numbers matter, even unofficial ones, but for critics that can prove problematic.

Questionable figures won't stop lawmakers during election season, particularly this week, as unofficial numbers on the House Republican tax plan got a lot of play during the Republican National Convention in Cleveland.

The proposed changes will boost jobs and economic growth, and they won't worsen U.S. debt, according to the storyline, which is also getting pitched in Republican districts nationwide during the congressional recess.

But those projections aren’t based on any official government forecasts and they include biases, so they shouldn't be given much weight, said former Congressional Budget Office Director Douglas Elmendorf.

“Very few organizations have the technical competence to do good estimates, and very few organizations have the non-partisan independence to do credible estimates,” he told Bloomberg BNA. “So people can claim they’ve produced estimates of legislation, but I think voters should not take them seriously.”

The Joint Committee on Taxation produces official budget and economic projections on revenue proposals like the House Republican tax plan, a list of policy preferences released last month that lacked sufficient information, like legislative language, for official scoring. More detail would be needed for that, said Elmendorf, now dean of the John F. Kennedy School of Government at Harvard University.

“You can’t trust an estimate of talking points,” he said.

In the absence of JCT estimates for now—they typically take months to generate—at least a couple of non-government forecasts surfaced within weeks of the tax plan’s debut.

Alternate Estimates

Elmendorf said he hadn’t read any of the unofficial scores, but key lawmakers like House Ways and Means Committee Chairman Kevin Brady (R-Texas) have seized on one in particular: a high-growth projection from the Tax Foundation.

That sounds troubling, since history has largely debunked the economic benefits of supply-side tax cuts, though that won't dissuade advocates from trying to sway the public yet again, said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities.

“If you put a big ripe cherry out there, some politician is going to pick it,” he told Bloomberg BNA.

According to the Tax Foundation analysis, the House Republican tax plan would produce 9.1 percent higher economic growth over the long term, lead to 7.7 percent higher wages and generate an additional 1.7 million full-time equivalent jobs. In addition, it would only cost $191 billion over a decade after factoring in all those economic benefits, but Brady has said using a current policy baseline instead of current law would eliminate that budget hit.

The group's model benefits from minimizing growth in federal debt and putting a lot of stock in letting businesses immediately deduct new investments, a central component of the House Republican plan, said Leonard Burman, director of the Urban-Brookings Tax Policy Center.

The Tax Foundation's communications director, Richard Borean, said estimates from his group, JCT, CBO and any other group should be taken in context of how each model works.

‘Politics Is Politics.'

Brady's embrace of those favorable numbers isn't unprecedented.

When Dave Camp chaired Ways and Means, the JCT produced a range of estimates on the economic impact of his 2014 sweeping tax overhaul proposal. The analysis forecast growth in gross domestic product by as much as 1.6 percent over a decade to as little as 0.1 percent, as well as similarly divergent projections on capital investment and employment.

Camp largely touted the most positive numbers when publicly discussing his plan.

“Politics is politics,” said Alan Auerbach, economics and law professor at the University of California, Berkeley. “Politicians are always going to use available information selectively that’s advantageous to them, which is why we have official government scorekeeping.”

So even though Camp didn't widely promote both ends of the JCT range, seeing them was useful because the differences showcase the vagaries of macroeconomic scoring, Auerbach told Bloomberg BNA. A single point estimate would wrongly suggest too much certainty, he said.

“I find the magnitude of the growth effects that some of these outside models are getting to be completely implausible, and I’m not the only one,” Bernstein said.

Both Bernstein and Auerbach said the Tax Foundation's estimates reflect the group's affinity for tax cuts like immediate expensing, and a more negative estimate of the House Republican plan from Citizens for Tax Justice reflects that group's concerns about redistributing tax burdens, Auerbach said. He also said government forecasts can cause plenty of quibbling too, as did Borean.

But biases can't be ignored, Elmendorf said.

Beware Bias

“Voters should not generally trust estimates of the effects of legislation that come from interested parties,” Elmendorf said. “Voters also should put a lot more weight on the estimates from folks at CBO and JCT who have a lot of expertise in the way policy works, and the way even well-intentioned policies sometimes don't work.”

A JCT estimate of the House Republican plan would probably show some economic benefit, Auerbach, Bernstein and Burman said. And the Tax Policy Center expects to release its own estimate of the plan in the next couple of months, perhaps alongside dynamic forecasts for tax proposals from presidential candidates Hillary Clinton and Donald Trump, if House Republicans provide details as promised, Burman said.

“At Tax Foundation we take care to describe in detail our differences with JCT and CBO in terms of assumptions, and further, to show what that would mean in terms of fiscal results,” Borean said, adding that “if three groups with different assumptions all say that a tax change would impact the economy in same direction, that sends a strong message to policy makers that a policy is good under a variety of different intellectual frameworks.”

And Burman lent a measure of support to the starting point provided by the Tax Foundation.

“I would have chosen different models,” Burman said, “but I think the macroeconomic effects are important and they're certainly right about that. I look forward to when I assume their models will be improving over time, as ours will, and hopefully for the 2020 campaign we can have a serious discussion.”

To contact the reporter on this story: Aaron E. Lorenzo in Washington at

To contact the editor responsible for this story: Brett Ferguson at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Daily Tax Report