Donald Trump's plan to extend tax cuts set to expire next year could do almost nothing to grow the US economy, Committee for a Responsible Federal Budget has said

President-elect Donald Trump has promised that renewing tax cuts will turbocharge investment and accelerate US economic growth, a central pledge in his successful November election campaign.

However, a new analysis from the Committee for a Responsible Federal Budget (CRFB), a nonpartisan fiscal watchdog, warns that extending tax cuts set to expire next year might have minimal impact on economic growth. This finding clashes with Republican claims that renewing the costly legislation will revitalize an economy many voters believe is failing them.

The expiring provisions primarily benefit individuals and households, such as lower income tax rates and an expanded child tax credit. While these measures are popular with voters, economists question their potential to deliver substantial economic benefits. Experts suggest corporate tax cuts are more effective in spurring investment, but the business tax breaks from Trump’s 2017 tax law are not part of the renewal plan.

Trump recently pledged to cut the corporate tax rate to 15% during a meeting with donors and business leaders at the New York Stock Exchange. However, this proposal faces skepticism from voters and some Republicans who are wary of providing additional benefits to large corporations.

Anna Kelly, a Trump transition spokesperson, defended the 2017 tax cuts, highlighting their role in boosting GDP growth and reducing prices. “The cuts delivered an economic boom and relief for millions of families across the country — and when he makes the cuts permanent, all Americans will benefit,” Kelly said.

Economic and Fiscal Implications

The CRFB based its findings on Congressional Budget Office (CBO) data, which previously projected that allowing the tax cuts to expire would improve public finances by reducing the cumulative fiscal deficit by $3.7 trillion over a decade. Increased revenue would curb public borrowing, potentially encouraging private investment. The CBO analysis suggested that these effects would largely offset a slight reduction in the labor force, resulting in only modest changes to GDP.

This analysis also implies that renewing the tax cuts would have a similarly limited impact on growth, according to the CRFB.

Other models, such as those from the Tax Foundation and Penn-Wharton Budget Model, suggest slight economic benefits from extending the tax cuts, but not enough to offset their estimated $4.6 trillion cost over ten years. The CRFB’s and CBO’s findings raise concerns about whether the economic benefits justify the high fiscal costs, putting pressure on lawmakers to identify spending cuts to fund the tax policy.

Spending Cuts and Tariffs

Trump has proposed aggressive measures to address the fiscal gap. His plans include creating a Department of Government Efficiency, led by Elon Musk and Vivek Ramaswamy, to identify significant public spending reductions. He has also floated imposing tariffs of 10% to 20% on all imports and up to 60% on Chinese goods to offset the tax cuts.

Mounting Fiscal Challenges

The US budget deficit is worsening, reaching $1.83 trillion in the fiscal year ending September 30, 2024, driven by rising debt interest, Social Security, and defense costs. In just the first two months of the current fiscal year, the deficit was $624 billion, amounting to $10 billion in daily borrowing.

“These are staggering figures, particularly given the challenges ahead,” said Maya MacGuineas, CRFB president. “If we’re serious about fiscal responsibility, we need to act now.”

GOP Fiscal Strategy

Extending the tax cuts is only one piece of Trump’s broader fiscal plan, which includes reducing taxes on tips and overtime pay, along with his proposed corporate tax rate cut. Wall Street economists see some growth potential in extending the tax cuts but emphasize the importance of pairing them with spending reductions to mitigate fiscal risks.

Stephen Jen, CEO of Eurizon SLJ Capital, commented, “It’s not just about tax cuts; it’s about creating a smaller government with lower spending.”

David Seif, chief economist for developed markets at Nomura, was more skeptical. “If additional tax cuts are implemented, I doubt there will be substantial pay-fors. Instead, I expect Republicans to rely on budget reconciliation to pass the legislation, increasing the deficit further.”