As of Monday, Senate Republicans looked like they were on pace to vote for their tax bill before Congress’s nonpartisan budget analysts could weigh in on how it might affect the economy. But now, maybe not! In a letter to the chamber’s Democrats, published this afternoon by the Wall Street Journal, the head of the Joint Committee on Taxation said his team was racing to finish its forecast by Wednesday night—and it doesn’t sound like the GOP will like the result very much.
The JCT is crafting what’s known as a “dynamic score” of the Senate proposal. The estimate will try to predict how the legislation will affect the deficit while taking into account how its tax reductions will alter economic growth. The more the corporate tax cuts boost our GDP, the cheaper they’ll look.
One key question budget wonks need to consider in this sort of analysis is whether the Federal Reserve will aggressively hike interest rates in response to faster growth. If they do, it could nip whatever economic benefit the tax cuts have right in the bud, increasing their cost on paper.
The JCT seems to be assuming that’s exactly what the central bank will do. Currently, the prevailing view among mainstream economists—including the Federal Reserve board—is that the economy is running nearly at full steam, and that any extra stimulus, whether in the form of government spending or tax cuts, will probably just lead to more inflation. Now, there are a lot of people who think that conventional wisdom is mistaken. But Congress’s budgeteers are not among them. “For this bill, since the economy is projected to be near full employment, [the analysis] will assume an aggressive Federal Reserve response,” JCT Chief of Staff Thomas Barthold wrote. In other words, don’t expect their model to back up Donald Trump’s heroic claims about how tax cuts will turbocharge the economy.
If the analysis does drop before the Senate vote, Republicans will likely try to downplay it. But there’s still a chance they won’t have to bother. First, Barthold says he can’t guarantee when the report will be published, since the JCT staff needs to do a number of “quality checks.” Second, the numbers may be outdated by the time they hit, since Republicans are considering major last-minute changes to their bill to win over holdouts. So we’re right where we were on Monday, actually: Whatever the Senate finally votes on, it seems safe to say that nobody will have had a chance to really understand it.