Fake Math
Today, the Treasury Department revised its Economic Forecast, based on the Senate Tax Plan.
OTP has modeled the revenue impact of higher growth effects, using the Administration projections of approximately a 2.9% real GDP growth rate over 10 years contained in the Administration’s Fiscal Year 2018 budget.OTP compared this 2.9% GDP growth scenario to a baseline of previous projections of 2.2% GDP growth. Treasury expects approximately half of this 0.7% increase in growth to come from changes to corporate taxation. We expect the other half to come from changes to pass-through taxation and individual tax reform, as well as from a combination of regulatory reform, infrastructure development, and welfare reform as proposed in the Administration’s Fiscal Year 2018 budget.This 0.7% increase in the annual real growth rate results in an increase in tax revenues during the 10- year period of approximately $1.8 trillion. Adding this $1.8 trillion of incremental revenue to the static current law score of -$1.5 trillion results in total receipts over the 10-year window increasing by $300 billion. These increased receipts are primarily collected in the last five years, as full expensing creates growth in early years but results in a deferral of collection of taxes.
Other Opinions
Business Insider posted a list of comments shredding the analysis.
- Jacob Leibenluft, former deputy director of the National Economic Council: “This document is a tacit admission that Treasury’s career tax experts have no analysis showing the tax plan pays for itself.”
- Jason Furman, a previous chairman of the Council of Economic Advisors, called the report an “embarrassing joke.”
- Senate Minority Leader Chuck Schumer blasted the report: “The latest Treasury ‘analysis’ is nothing more than one page of fake math,” Schumer said.
No Miracles
The Treasury predictions are both biased and absurd. They assume the tax cuts will spur hiring and investment.
The implied notion the tax cuts will stave off a recession for 10 years or that a recession won’t matter is ridiculous.
We already know the hiring and investment idea is fallacious. The repatriation holiday caused a Spike in Buybacks Announcements. Shareholders, not workers will get a tax break.
Mike “Mish” Shedlock
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“OTP has modeled the revenue impact of higher growth effects, using the Administration projections of approximately a 2.9% real GDP growth rate over 10 years contained in the Administration’s Fiscal Year 2018 budget.” Projections are just that, someone’s imaginings. The modeling is based on someone’s imaginings.
Although I agree with the conclusion that we will not see long-term economic growth from these tax cuts, I disagree strongly with your use of the term “Fake Math”. Economics should not be represented as “Math”. The two are distinctly different.
When everything is fake why not this? After all, when lies are repeated often it is construed to be the truth. Everyone seems to be so adept at this that truth appears laughable (ask Hussman). The music still seems to be playing so everyone is dancing.
Zimbabwe and Venezuela can grow at X per year too, if “growth” get to mean whatever those proclaiming it wishes.
If you look at harder to fudge measures, like per capita energy consumption, there hasn’t been growth for decades. And while I’m not sure anyone is tracking median consumption, considering the growth in Government use, particularly military; as well as the at least seeming increase amongst those on the, relative, beneficiary side of the past few decades of ever more rapacious Fed looting, I wouldn’t hold my breath for much other than a pretty darned steep decline.
Of course, it’s much easier and more fun to play useful for something, when you get to define your own measure for usefulness.
Fewer regulations and welfare reform will unquestionably spur higher GDP growth. How can anybody on this site debate this? Regulations are falling already and welfare reform is next up on the docket. Now, a debate can be had about whether or not tax cuts spur long-term growth when spending doesn’t decline. But to just blow off deregulation and welfare reform is poor analysis. Mish so badly wants to be right about the economy tanking soon, but instead why not admit you were wrong and be happy that we have the best president since Reagan? When tax reform is passed just watch GDP growth go up to 3.5% in 2018. Then what will you predict? Mish, when will you admit that you have just been flat out wrong with your growth predictions?
As for the logic of cutting taxes and not cutting spending; legislators cannot get re elected without buying votes. You cannot buy votes if you don’t have money available to distribute. The end of this cycle will occur when we have maxed out our credit card….a day difficult to predict. In the meantime, debt service will continue to force the Fed to artificially reduce interest rates to far below the rate of inflation, which will gut returns to capital for the middle class. It will, at the same time, fatten the pockets of investment banks which can play the carry trade game (raising prices in an inflationary environment, on assets purchased with very cheap credit).
Cutting business taxes (all of which are ultimately paid by consumers) will expand investment in business entities. Even if stock buybacks are the application for the greater retained earnings of current entities, those buyback payments will find their way into capital investment in other entities, driven primarily by expected rates of return. This reallocation of capital is part of the magic of free markets, which tend to be efficient directors of capital resources. The new capital investment should result in additional employment and production.
Hi Realist, Everybody complains about the boom – bust cycle. Apparently steady slow growth isn’t good either.
The tax holiday was just that — a big party. Lowering the corporate rate into future will help to prevent inversions and the flight of corporate headquarters to other countries. It will make the US a bit more favorable for business. If it is good for Ireland and the UK it will be good for us. Having said that, the pending bill mostly is a steaming POS.