How Congress May Claim That Doing Nothing Can Grow The Economy.

Can Doing Nothing Really Boost the Economy by Trillions? The Debate Over Tax Cuts and Economic Growth

Introduction: The Republican Strategy on Tax Cuts and Economic Growth
Congressional Republicans are considering an unconventional approach to economic growth: doing nothing. They aim to extend the expiring provisions of the Tax Cuts and Jobs Act (TCJA) without altering tax policy, claiming this could stimulate the economy by trillions of dollars over the next decade. This strategy is gaining traction, particularly with House Speaker Mike Johnson, who is inclined towards a Senate Republican plan to treat key TCJA provisions as permanent, despite their impending expiration.

The Senate’s Current Policy Baseline: A Controversial Approach
The Senate’s proposed budget assumes that extending the TCJA is merely maintaining the status quo, not changing tax policy. This "current policy baseline" allows them to avoid accounting for the $4.5 trillion cost of extending these tax cuts. While this approach makes the financial burden disappear on paper, any tax cuts would still require funding through tax increases, spending cuts, or additional borrowing. This method is at odds with standard budget scoring practices, raising concerns about its economic validity.

House Speaker Johnson’s Dilemma: Balancing Competing Budget Assumptions
House Speaker Mike Johnson faces a challenge as the House budget is based on a different assumption: recognizing that a significant portion of the TCJA will expire at the end of the year. This "current law baseline" accounts for $4.5 trillion in potential tax cuts to extend these provisions. The House plans to detail these tax provisions shortly, but their budget includes a controversial assumption—that extending the TCJA, enhancing government efficiency, and altering federal regulations will boost economic growth by $2.6 trillion over a decade, partially offsetting the costs.

Tax Cuts and Growth: The Economic Impact
Extending the TCJA could marginally boost the economy, but not to the extent suggested by the House. The Tax Policy Center (TPC) estimates that economic growth would reduce TCJA extension costs by approximately $220 billion over ten years, far less than the House’s $2.6 trillion assumption. This discrepancy highlights the potential overestimation of growth effects and the lack of detailed policies to support such claims. Independent forecasts align with TPC’s analysis, indicating limited economic benefits from tax cuts alone.

Combining Senate and House Strategies: A Recipe for Economic Confusion
When reconciling the Senate and House budgets, lawmakers might merge the Senate’s current policy baseline with the House’s growth assumptions. This combination would imply that merely extending the TCJA, without changing tax policy, would significantly boost the economy. However, this approach lacks economic coherence. It assumes that no policy change leads to substantial growth, which is not credible. Additionally, the House’s budget lacks specifics on how government efficiency or regulatory changes would achieve these growth targets, making accurate economic forecasting impossible.

Conclusion: The Credibility Crisis in Budgetary Assumptions
The strategy of extending the TCJA without acknowledging its budgetary cost strains credibility. Claiming that economic growth can substantially offset these costs is equally implausible. The lack of clear policies to achieve such growth raises concerns about the potential benefits and harms of unspecified changes. For instance, while reducing regulatory hurdles could stimulate business, cuts to essential services like weather forecasting might hinder economic growth. In conclusion, pretending that extending the TCJA has no cost and that growth can cover these expenses is economically unrealistic. Lawmakers must adopt a more transparent and evidence-based approach to budgeting and economic policy.