The White House has called it the biggest tax cut in American history, but that’s not quite true.
While President Trump’s tax reform proposals announced Wednesday would be large, they would fall in third place as the biggest U.S. tax cut since 1940. That’s according to very rough estimates by the Committee for a Responsible Federal Budget, a nonpartisan group focused on reducing federal deficits and debt.
By the CRFB's estimates, President Trump’s tax plan – which is still very light on details and difficult to forecast with any accuracy – would cost about $5.5 trillion over a decade. As a nominal dollar amount, it’s true that might be the largest tax cut in history, but anyone who knows a little history knows it’s not accurate to compare historical dollar figures to today’s dollars because of inflation.
For that reason, the CRFB looked at the tax cuts relative to the size of the overall U.S. economy, i.e., tax cuts as a share of gross domestic product. Through that lens, the President's cuts would amount to about 2.3% of the country’s GDP over the next 10 years, the group estimates.
By that measure, two previous tax cuts were even larger than Trump’s proposal: The first was the 1981 tax cut enacted by President Ronald Reagan, and the second was in 1945, as lawmakers rolled back tax hikes used to fund World War II.
The Reagan tax cuts cost the country about 2.9% of GDP over four years, with costs rising even more over time. The second-largest cut, following WWII, cost the country about 2.7% of GDP in the year after it was enacted.
Regardless of its exact ranking in history, Trump’s tax plan has raised concerns among budget hawks as to how the government will be able to make up for such a large drop in revenue. Treasury Secretary Steven Mnuchin has said the plan will “pay for itself,” through faster economic growth and “reduction of different deductions and loopholes,” but the White House didn’t outline any specifics on those issues.
The CRFB notes that by its estimates, Trump's tax plan would lead the U.S. debt to rise to its highest point in history, and “no achievable amount of economic growth could finance it.”
“As it stands now, President Trump's tax cut would be among the largest in history, but it would not be the absolute largest,” the group said. Still, "that's bad news for the federal debt."