House Democratic Leader Nancy Pelosi says the Republican tax plans will be a “job-killer,” but most economic analyses of the plans suggest, on balance, modest job growth.
The government’s nonpartisan Joint Committee on Taxation has not yet completed its analysis of the plans’ effect on employment. But several outside groups have run analyses that show modest net job gains from the GOP tax plans.
For example, Moody’s Analytics forecasts the plans will create in the range of 500,000 to 600,000 net new jobs over 10 years — though it says that comes at a steep cost to the nation’s debt.
The business-backed Tax Foundation’s analysis of the Senate plan concludes it would result in 925,000 additional full-time equivalent jobs over 10 years.
A spokesman for Pelosi says the House Democratic leader was “talking about the perverse incentives the Republican bill creates for corporations to ship more American jobs overseas.” The spokesman cited, in part, the work of Jared Bernstein, formerly a member of President Obama’s economic team.
In an op-ed for the Washington Post, Bernstein says the Republican plan is “likely to lead to more outsourcing of U.S. jobs and a larger trade deficit.” Specifically, he believes working-class factory workers would take a hit.
Wildly divergent claims about the tax plans’ effect on jobs have been coming from opposite sides of the political aisle.
In comments on Nov. 27, President Donald Trump assured that the tax changes “will bring jobs.” Later, he added, “It’s going to mostly benefit people looking for jobs more than anything else, because we’re giving great incentives.” A day earlier, on NBC’s “Meet the Press,” Pelosi offered the opposite take on the Republican tax plan, saying “it’s going to be a job-killer.”
Eric Toder, co-director of the Tax Policy Center, warns people not to put much stock in such projections either way.
“Most comments on either side of the political divide about how tax proposals would affect jobs either plus or minus are bogus,” Toder told us via email. “Overall employment depends on total demand for goods and services in the U.S. economy which is largely determined by monetary policy. Fiscal stimulus can increase employment during times of high cyclical unemployment, but in today’s low unemployment economy probably has very little effect. However, the tax bill, by increasing the deficit, may provide a temporary employment boost in the short run. And changes in the relative tax treatment of different activities will raise employment in some industries and lower it in others.”
As we said, neither side can cite direct evidence for the effect on jobs from a government analysis. The government’s nonpartisan Joint Committee on Taxation has yet to weigh in on the plans’ effect on employment.
The spokesman cited the work of Gene Sperling, a principal economic adviser to Democratic Presidents Bill Clinton and Barack Obama, and Jared Bernstein, a member of Obama’s economic team and currently a senior fellow at the left-leaning Center on Budget and Policy Priorities.
In a piece for the Atlantic, Sperling argues that a provision in the bill designed to limit offshoring of jobs “would actually incentivize U.S. companies to move their operations overseas and to shift profits to tax havens.”
Bernstein echoes those concerns in a piece penned for the Washington Post. The GOP plans, he notes, call for moving to a territorial system of international taxation, which would tax only income earned in the U.S. While the idea is to reduce incentives for corporations to offshore jobs, Bernstein argues the GOP plan would “exacerbate” those incentives, “which will lead to more overseas production and the loss of jobs here at home.” Specifically, Bernstein argues, it would lead to a loss of manufacturing jobs.
In an email to FactCheck.org, Bernstein said the point of his piece “was that because of the offshoring incentives in the plan and its clear impact on higher trade deficits (this is widely agreed upon), it is likely to lead to job loss (relative to a baseline) in manufacturing.”
But Bernstein isn’t saying the tax plan is necessarily a net job-killer.
“I think the best way to answer this is to look at the various dynamic scores that have come out and recognize that in these basic models, higher GDP is associated with more net jobs,” Bernstein said. “Most conventional scores I’ve seen show at least slightly higher GDP growth, so they imply some net job growth, though many of the estimates are fractional [less than 1 percent] … I’d characterize that as minimal job growth, but a net plus.”
Indeed, several macroeconomic analyses of the GOP tax plans forecast very modest long-term GDP gains.
- The Tax Policy Center’s macroeconomic analysis of the House bill found that it “would increase U.S. output by 0.6 percent of GDP in 2018, largely due to increased household and business spending from the tax cuts,” Toder told us. “But this benefit would wear off over time; we project GDP would be 0.3 percent above baseline levels in 2027 and only 0.2 percent above baseline levels in 2037.” TPC has not completed a similar analysis of the Senate plan.
- The Penn Wharton Budget Model forecast that the GDP would be 0.4 percent to 0.9 percent higher by 2027 under the House GOP plan, compared with what it would be with no tax changes. That model also projected the House plan would raise the federal debt by $2 trillion over 10 years.
- The Moody’s Analytics forecast concluded: “Neither the House nor Senate plans would meaningfully improve economic growth, at least not on a sustained basis.” Over the next decade, the Moody’s report found, “The tax plan does not increase growth from 2% to 3%, as the proponents argue, but from 2% to 2.03%.”
- The Tax Foundation projected an initial 1.19 percentage point jump in the GDP under the Senate plan, bringing the GDP to 3.2 percent in 2018. But that increase falls over time. By the end of 10 years, the tax plan is expected to increase the GDP growth by 0.2 percentage points (to 2.08 percent).
Pelosi’s speculation about the tax plan being a “job-killer” is just that, speculation. But most economic analyses to date suggest that while there will be winners and losers in the labor force, the net effect on the number of jobs will be small, but positive.
Toder, of the Tax Policy Center, stressed that “all macro analysis of the effects of tax bills have a high degree of uncertainty,” and he advised readers to “[b]eware of simplistic or over-confident assertions on this topic.”
Update, Dec. 6: After we published this story, the Joint Committee on Taxation issued a report on the economic impact of the Senate tax bill that projected an increase in employment of about 0.6 percent over 10 years compared with current law.