Treasury Forecasts Tax Reform Will Lead To Longest Period Without Recession In History

One week ago, in its latest assessment of the current state of tax reform in the aftermath of the Senate's passage of the tax bill, Goldman analysts calculated that while growth impact from tax reform had increased fractionally to around 0.3% in 2018 and 2019 "reflecting the slightly larger amount of tax cuts in the Senate plan following revisions, and our expectations regarding the eventual compromise", it expected a very modest - if any - boost to US economic growth from tax reform.

Today, in a report prepared by the US Treasury - which as reminder is run by former Goldmanite Steven Mnuchin - and which was meant to bolster the case for the economic growth to be unleashed by the Trump tax cuts, and distract from the spike in deficit funding, the Treasury’s Office of Tax Policy (OTP) calculated that - somehow - the Senate's version of tax cuts will result in 2.9% real GDP growth rate over 10 years.

This 2.9% GDP growth scenario compares to a baseline of previous Treasury projections of 2.2% GDP growth. Treasury "expects approximately half of this 0.7% increase in growth to come from changes to corporate taxation, while the other half is expected to come from changes to pass-through taxation and individual tax reform, as well as from a combination of regulatory reform, infrastructure development, and welfare reform as proposed in the Administration’s Fiscal Year 2018 budget."

This Treasury also claims that this 0.7% increase in growth results in an increase in tax revenues during the 10- year period of approximately $1.8 trillion.

And this is where the magic of fairy-tale forecasts comes in because adding this $1.8 trillion of incremental revenue to the static current law score of -$1.5 trillion results in total receipts over the 10-year window increasing by $300 billion.  In other words, the Trump tax cuts will not only not add to the deficit but will reduce debt by $300 billion, according to the Treasury.

Conveniently, the Treasury caveats that "these increased receipts are primarily collected in the last five years, as full expensing creates growth in early years but results in a deferral of collection of taxes."

It is unclear what is more ridiculous: that the propose gift to corporations will not only pay for itself but lead to a perpetual engine of trickle-down economic growth, one which has been refuted in every single instance in history, or that the Treasury expects the US economy to continue for another decade without a recession, which in 2027 result in an 18 year period of continuous growth since the last official recession ended in 2009, the longest period without a recession in history.

Of course, when the next recession hits no later than 2019 when the yield curve will be steeply negative and crushing the financial sector, government tax revenues will plunge leading to a blowout in government borrowing, forcing the Fed to launch QE4 as its monetization of the surging deficit will be critical in a world in which every other central bank will be dealing with its own issues at home.

As parting humor, the OTP notes the following:

We acknowledge that some economists predict different growth rates. OTP projects that at approximately 0.35% of incremental annual GDP growth, Treasury tax receipts would generate approximately $1 trillion of incremental revenue. Neither JCT nor Treasury has released a score showing increased tax receipts from the House plan, though we would not expect the results to be materially different.

We will be happy to revert to this post some time in 2027 when total US government debt is between $35 and $45 trillion, and when as the CBO correctly predicted, total US debt/GDP will be in its exponential phase.

The Treasury's 1 page "analysis" is below (link):


Paul Kersey Stackers Mon, 12/11/2017 - 14:21 Permalink

"Treasury Forecasts Tax Reform Will Lead To Longest Period Without Recession In History" Get fucking real. The "Treasury"  IS the Secretary of the Treasury. The Secretary of the Treasury is former Goldman Sachs and George Soros partner, Steve Mnuchin. Steve Mnuchin, former Goldman Sachs President Gary Cohn and Paul RINO Ryan created the Tax "Reform" plan to further enrich themselves and their klepto-cronies.The Four Greatest Lies:"The check is in the mail.""I love you.""I promise not to cum on your mouth.""I am Secretary of the Treasury, Steve Mnuchin, and I'm from the Government, and I created this "Tax Reform" plan to help you, the American people." Translation: "I can't stand you debt serfs. I live to screw you. The check is in my offshore bank account, and I promise not to cum in your mail."

In reply to by Stackers

LawsofPhysics Mon, 12/11/2017 - 12:15 Permalink

Allow me to clarify; An increasing population of greedy human consumers, bankers, and financiers who continue to expect something for NOTHING, and NO real work, will lead to WWIII.Fixed it for you.Moral hazard can be a real motherfucker.  If you don't perform real work, you don't eat.In the meantime..."Full Faith and Credit"

ejmoosa Mon, 12/11/2017 - 12:18 Permalink

A recession is two consecutive quarters of negative GDP.So we are willing to settle for sub-par growth going forward to prevent ever having two negative quarters again?Recessions eliminate the weak players allowing the stronger players to prosper.Forgive them for they know not what they are doing.

AGuy Mon, 12/11/2017 - 12:19 Permalink

Mr Janet "Lucy" Yellen going to rip the football away from Charlie Brown by raising rates this month as her going away surprise for Trump. Perhaps a 75 bps hike. US economy is floating again on cheap and easy credit. No way consumers have more disposable income this year with all of the retail store closings & soaring Healthcare costs. Health Ins. Premiums outpace wage growth by about a factor of 8. Pull the cheap & easy Credit and the US economy will come to a halt.

Pollygotacracker Mon, 12/11/2017 - 12:49 Permalink

The Fed may finally get what they said they wanted...inflation. Tax cuts might actually succeed where money printing failed. The Fed will be forced to raise rates and voila`...recession. This shit is so stupid you just can't believe it. 

CashMcCall Mon, 12/11/2017 - 13:04 Permalink

In the Socialist Word where everything is backstopped by the Federal Gov., There can be no recessions as long as borrowing is unlimited and Gov spends more than it can borrow. RINOTAX CUTs are $1.5 Trillion borrowed dollars that trigger another $2 trillion shortfall over five years. RINOTAX REFORM IS QE to balance the FED's 2.5 TRillion "rebalancing" with a little extra icing stolen from the Taxpayers. 

0hedgehog Mon, 12/11/2017 - 13:15 Permalink

As if this legislation will be somehow fiscally advantageous to the average Jane........not!As if we are not already in a deep recession bordering on depression!

Money_for_Nothing Mon, 12/11/2017 - 14:43 Permalink

The Great Recession has been going on for a long time. The economy is starting to grow again and the tax cut will light a 10% growth rate for about the next five years. More than likely another baby-boom is coming. Automated factories will make productivity the highest it has ever been.