Cutting Taxes with Borrowed Money
But it turns out two can play at that game. The Penn Wharton study is dynamic, too, and its results are shockingly different. It finds that there would be some economic growth by 2027 . . . but not much: GDP would be a whopping 0.33 to 0.83 percent bigger. By 2040, the study estimates that this growth will have faded out entirely, and indeed that the economy might be slightly smaller than it would have been otherwise. It puts the ten-year revenue loss in the range of $1.4 to $1.7 trillion.
.. Why do the GOP’s tax cuts fail to boost the economy in Penn Wharton’s analysis? Because they’re funded with deficit spending, and in this version of dynamic scoring, deficit spending reduces investment.
.. When the government borrows money, by definition it has to find people to lend it that money. Some percentage of the time, these people will lend the government money that they otherwise would have invested in the American private sector. Thus the deficit “crowds out” private investment, counteracting the pro-investment effect of cutting the corporate tax.