Tax Reform Is Covering Its Costs: Faster growth is on track to outpace debt in the next decade

By Edward Conard. Excerpt:

"Last week the Congressional Budget Office released a 10-year forecast—the first to assess the effects of tax reform after one year of hard results. Compared with its prereform projection, the CBO now expects annual GDP growth to be almost $750 billion higher by 2027, the last year of its prior forecast. A strong case can be made that tax reform played a predominant role in accelerating GDP growth. While most large economies stagnated last year, a sharp rise in business investment in the U.S. helped drive the economy forward.

On the other side of the ledger, the CBO predicts the tax cuts will add $1.9 trillion of additional debt in the coming decade, and that the government will pay about $60 billion more in interest each year as a result.

So the bottom line says an extra $60 billion a year buys the U.S. $750 billion in annual GDP. That’s a great deal for taxpayers.

Even focusing solely on tax revenue, the government is on pace to collect more than $120 billion each year from that additional $750 billion of GDP—much more than enough to cover the additional interest payments. Even if a significant portion of the projected GDP gains since 2017 are not the result of tax reform, the tax cut still pays for itself.

Tax reform increases real, inflation-adjusted GDP by $300 billion to $450 billion a year in the coming decade, relative to the CBO’s 2017 projection. Assuming a real growth rate of 1.8% and a real long-term U.S. government interest rate of about 1.2%, the value of that GDP boost dwarfs the amount of debt the government borrowed to finance the tax cuts."