Isn’t it time to admit that the tax cuts are not going to pay for themselves?
Larry Kudlow, the director of President Trump’s National Economic Council, was asked that question Friday morning on CNBC, and it’s an eminently fair question. After all, the cuts have reduced federal tax revenue, with corporate tax receipts falling by a third from fiscal 2017 to 2018. And, while it’s still early — the new tax law is just shy of a year old — it’s hard to find signs of the sustained restructuring of the economy that supply-side boosters of the law predicted.
Most economists expect the stimulus effect of the tax cuts and spending increases passed by Congress over the last 12 months to wear off after 2019, and without a long-lasting economic lift the tax law won’t be able to pay for itself.
Kudlow, though, is sticking to his guns.
“No, I think quite the opposite,” he told CNBC’s David Faber. “I think the tax cuts are working. I think nominal GDP is much higher than people expected. Even the CBO has acknowledged as much. I think you’re going to see the budget deficit come way down as a share of GDP because of faster economic growth. I mean, you know, we’re in a really good spot here if you ask me.”
Faber was incredulous: “You really think the budget deficit is really going to start falling next year, Larry? You really do? I mean, revenues don’t seem to be pointing to that. [CBO] doesn’t seem to be pointing towards that. What underlies that, even if we maintain, let’s call it 3 percent [GDP growth]?”
Kudlow said he thinks revenues will rise and pointed to President Trump’s call for “a very tough budget” for next year, with 5 percent cuts to non-defense discretionary spending, as helping close the gap.
“I think the combination of spending limits and economic growth will do the trick,” Kudlow said. “I mean, the deficit as a share of GDP will come down a lot in the next few years.”
Few if any economists outside the Trump administration share that forecast.
Watch Kudlow’s tax and deficit comments below.