When the Congressional Budget Office released its updated budget forecast, everyone focused on the deficit number. But buried in the report was the CBO's tacit admission that it vastly overestimated the cost of the Trump tax cuts, because it didn't account for the strong economic growth they would generate.
Further on, the editorial states:
The CBO report also makes clear that this faster-growing economy will offset most of the costs of the Trump tax cuts.
In a table buried in the appendix of the CBO report, it shows that, before accounting for economic growth, the tax cuts Trump signed into law late last year would cut federal revenues by $1.69 trillion from 2018-2027.
But it goes on to say that higher rate of GDP growth will produce $1.1 trillion in new revenues. In other words, 65% of the tax cuts are paid for by extra economic growth.
The "table buried in the appendix of the CBO report" is Table A-1, on page 94, the second page of Appendix A. The title of the table is "Changes in CBO’s Baseline Projections of the Deficit Since June 2017". In the section for "Legislative Changes", the table lists the "Total Change in Revenues" from 2018-2027 as -$1.69 trillion. In the section for "Economic Changes", however, it lists the "Total Change in Revenues" from 2018-2027 as $1.088 trillion. This matches the two numbers cited in the editorial above. However, it's not clear from the table that these changes are due to the tax cuts. In fact, the CBO report states the following on page 94:
As a result of legislative changes, CBO has reduced its projections of revenues by $163 billion for 2018 and by $1.7 trillion for the 2018–2027 period. Almost all of that decrease stems from the 2017 tax act.
Regarding economic changes in revenues, the report states the following on page 99:
Revisions to CBO’s economic forecast caused the agency to increase its projections of revenues by $4 billion for 2018 and by $1.1 trillion for the 2018–2027 period. More than half of those changes were driven by the macroeconomic effects of recently enacted legislation—specifically, the 2017 tax act, the Bipartisan Budget Act of 2018, and P.L. 115-120. Updated data for key measures from the national income and product accounts (NIPAs) also led to economic revisions.
Hence, the report says that "almost all of the decrease" in revenues due to legislation is due to the tax cuts but "more than half" of the increase in revenues due to economic changes is due to the tax cuts and two other pieces of legislation. Just before the above statement, the report states:
About half of the economic changes stem from the macroeconomic effects of the 2017 tax act (see Appendix B).
Appendix B is titled "The Effects of the 2017 Tax Act on CBO’s Economic and Budget Projections". On page 129 is the following table:
Table B-3.
Contributions of the 2017 Tax Act to CBO’s Baseline Budget Projections
Billions of Dollars
Total
-------------
2018– 2018–
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2022 2028
-------------------------------------------------------------------------------------- ------ ------
Effects Without Macroeconomic Feedback*
Effects on the Primary Deficit^ 194 281 307 304 263 218 183 164 36 -60 -46 1,349 1,843
Effects on Debt-Service Costs 3 8 17 29 39 48 55 63 68 70 71 97 471
Effects on the Deficit# 197 289 325 333 302 266 238 227 104 10 25 1,445 2,314
Effects of Macroeconomic Feedback*
Effects on the Primary Deficit^ -33 -67 -65 -58 -55 -49 -47 -49 -48 -50 -51 -278 -571
Effects on Debt-Service Costs 0 5 12 18 23 27 23 13 3 -4 -11 59 110
Effects on the Deficit# -33 -61 -53 -41 -31 -22 -24 -36 -44 -54 -62 -219 -461
Total Contributions to Baseline Projections
Effects on the Primary Deficit^ 160 214 243 246 208 169 136 115 -12 -110 -97 1,071 1,272
Effects on Debt-Service Costs 3 14 29 47 63 74 78 76 71 66 60 156 582
Effects on the Deficit# 164 228 272 292 271 243 214 191 59 -43 -37 1,226 1,854
----------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.
* Macroeconomic feedback refers to the ways in which the act would affect the budget by changing the economy.
^ The primary deficit is the deficit excluding debt-service costs.
# Positive numbers indicate an increase in the deficit; negative numbers indicate a decrease in the deficit.
On page 128, the CBO report explains the table as follows:
The 2017 tax act had significant effects on CBO’s budgetary projections for the 2018–2028 period. The agency took two steps to incorporate those effects into the projections. First, CBO estimated the act’s direct effects, which are the effects on the budget that do not take into account any changes to the aggregate economy. For example, this step incorporated the ways in which the act’s reduction in tax rates will diminish federal revenues through its effects on taxpayers’ behavior. Second, CBO considered macroeconomic feedback—that is, the ways in which the act will affect the budget by changing the overall economy (such as by increasing wages, profits, and interest rates). Incorporating both kinds of effects boosts the projected primary deficit by a cumulative $1.272 trillion over the course of the 11-year period. After debt service too is incorporated, the projected deficit is higher by $1.854 trillion (see Table B-3).
Hence, the CBO report puts the cost of the tax cuts at $1.85 trillion over 10 years, $1.26 trillion more than the $0.59 trillion suggested by the editorial. The CBO report does estimate the cost on the deficit over 10 years to be $1.84 trillion, close to the $1.69 trillion mentioned by the editorial. However, it also lists $0.58 trillion in additional debt-service costs due to the higher debt and somewhat higher interest costs. Also, it lists the full macroeconomic benefits to be $0.57 trillion, over a half trillion dollars less than the $1.1 trillion stated in the editorial. Those differences of $0.15 trillion, $0.58 trillion, and $0.53 trillion add up to the $1.26 trillion difference between the $1.85 trillion cost of the tax cuts given by the CBO report and the $0.59 trillion cost given by the editorial.
The lesson of this is to verify as much as possible any conclusions put forth in an article, especially if those conclusions may be affected by politics and/or the article is an editorial. In my experience, it's not uncommon for the numbers to be correct but for the interpretation of those numbers to be wrong. That is the case here. If possible, one should verify the numbers and attempt to check the conclusions. At the very least, it's instructive to check if the report from which the numbers come states the same or a contrary conclusion. Also, it can be helpful to seek other sources and check their interpretation of the numbers. Googling "Trump Tax Cuts Paying For Themselves CBO Report" (without the quotes) turns up a number of Washington Post article titled "No, tax cuts do not pay for themselves". Many of of the other headlines mention the tax cuts, spending, and trillion dollar deficits. However, an article in "The Hill" is titled "GOP tax law will add $1.9 trillion to debt: CBO" and states many of the numbers from Table B-3 above. It states:
The GOP's signature tax law is projected to increase the national debt by $1.9 trillion between 2018 and 2028, according to a new report by the Congressional Budget Office (CBO).
According to the report, the tax law would cost the government $2.3 trillion in revenues, but economic growth would offset that figure by about $461 billion.
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