Trump Tax Cuts To Add As Much As $7 Trillion In Debt

While today’s “tremendously” vague one-page summary of Trump’s tax plan had barely any detail – it did not even include the income ranges for the three personal income tax brackets – it did contain enough information for the CRFB to be able to score it, and calculate how much it would cost, or in other words assuming little or no offsetting revenues, this is how much additional debt it would add to the existing upward trajectory in US national debt.

While it is in a way amusing that after 8 years and $10 trilion in debt accumulated under the Obama administration, US sovereign debt suddenly matters, we admit that the CRFB’s findings are troubling. This is how the CRFB phrased it: “the White House released principles and a framework for tax reform today. We applaud the President’s focus on tax reform, but the plan includes far more detail on how the Administration would cut taxes than on how they would pay for those cuts. Based on what we know so far, the plan could cost $3 to $7 trillion over a decade– our base-case estimate is $5.5 trillion in revenue loss over a decade. Without adequate offsets, tax reform could drive up the federal debt, harming economic growth instead of boosting it.

The framework proposes a number of specific changes including: consolidating and reducing individual income tax rates to 10, 25, and 35 percent; doubling the standard deduction; cutting the business tax rate to 15 percent on both corporations and pass-through businesses; repealing the Alternative Minimum Tax (AMT) and estate tax; repealing the 3.8 percent investment surtax from the Affordable Care Act (“Obamacare”); moving to a territorial tax system; and imposing a one-time tax on money held overseas.

The plan also includes some vaguer proposals, including “providing tax relief for families with child and dependent care expenses” and eliminating “targeted tax breaks that mainly benefit the wealthiest taxpayers.” Although the framework itself is vague on the latter, at their press conference Secretary of the Treasury Steven Mnuchin and National Economic Director Gary Cohn seemed to imply it meant repealing all individual deductions unrelated to savings, charitable giving, or mortgage interest (revenue would come mostly from repealing the state and local tax deduction).