Is the tax cut expected to pay for itself? Yes — if we use the Congressional Budget Office’s forecast and any economically logical standard, the tax cut makes both current and future generations better off.
The CBO now expects the nominal gross domestic product to increase nearly $750 billion more per year by 2020 than in its forecast prior to the tax cut. It originally attributed about one third of that growth to the tax-cut legislation — even by that estimate, the cut more than pays for itself. The CBO expects that, through a combination of real GDP growth and a burst of inflation, the cut will produce more tax revenue when the middle-class tax cuts expire than would have been the case without the cut. The expected increase in tax revenue, together with the elimination of the health-care mandate, which saves more money than it costs, and other pushes and pulls, more than pays for the interest expense from deficits that accumulate in the interim. That expense includes additional interest paid on all federal debt from an expected rise in interest rates stemming from the tax cut. The eventual increase in tax revenue enables the cut to pay off its debt gradually. With its financing costs covered and the debt accumulated from the cut now declining, the legislation leaves future generations to enjoy more real after-tax GDP than would have been the case without the tax cut. Distributional analysis indicates that households across all income levels share these gains.
Contrary to popular belief, a tax cut doesn’t need to recover its lost tax revenues to make future generations more prosperous. That’s an illogically high standard used as spin by opponents of tax cuts. If you borrow money to buy an asset that permanently produces more income than the cost of the interest on the money you borrowed to buy the asset, you and your children are made richer by the additional income the asset produces, not poorer by the amount of the money you borrowed. That’s why investors make investments. The 2018 tax-cut legislation is no different. Read more here.