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Hassett Predicts Tax Plans Pay for Themselves; Studies Disagree

Hassett Predicts Tax Plans Pay for Themselves; Studies Disagree

(Bloomberg) -- Republican plans to cut taxes for businesses and individuals will prompt economic growth that will cover their cost over 10 years, said Kevin Hassett, the chairman of the White House Council of Economic Advisers.

“It’s just not economically rational” to say that the plans would increase the federal deficit, Hassett said during a White House briefing Friday.

Independent studies have reached differing conclusions. The conservative-leaning Tax Foundation, a Washington policy group, said earlier this month that the House’s tax bill would cost $1.98 trillion over a decade -- compared with current law.

The tax changes proposed by the House would spur growth that would boost federal revenue by more than $900 billion over that time frame, according to the Tax Foundation’s study. That “would go a long way toward bringing the plan closer to revenue neutral” within its first 10 years, the group said.

The group looked at an earlier version of Senate plan and found that it would add $516 billion to the deficit after growth effects. The plan has since been changed -- though its deficit score might increase because of lower economic growth stemming from changes that limited the individual tax cuts.

Meanwhile, the Penn Wharton Budget Model at the University of Pennsylvania found that, after accounting for larger economic effects, the House bill would “reduce revenues between $1.5 trillion and $1.7 trillion” over 10 years. The Senate plan would reduce revenue by $1.4 trillion to $1.7 trillion, the model found.

The studies incorporate so-called “dynamic scoring,” which accounts for legislation’s effects on the larger economy. Without considering such effects, Congress’s Joint Committee on Taxation has said that both the House bill and the Senate tax proposal would add more than $1.4 trillion to the deficit over 10 years.

The House approved its tax bill on Thursday as the Senate Finance Committee approved its own legislative proposal , which differs from the House plan.

--With assistance from Erik Wasson

To contact the reporter on this story: John Voskuhl in Washington at jvoskuhl@bloomberg.net.

To contact the editor responsible for this story: Alexis Leondis at aleondis@bloomberg.net.

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