Will the tax cuts pay for themselves?

Summary

Podcast Summary: "Will the Tax Cuts Pay for Themselves?"

The Indicator from Planet Money
Host: Darian Woods & Waylon Wong
Episode Release Date: July 8, 2025

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Introduction

In the episode titled "Will the Tax Cuts Pay for Themselves?", hosts Darian Woods and Waylon Wong delve into the contentious debate surrounding President Trump’s recently enacted One Big Beautiful Bill Act—a significant extension of the 2017 tax cuts. With the bill projected to cost the government $3.4 trillion over the next decade according to the Congressional Budget Office (CBO), the discussion centers on whether these tax cuts can indeed generate enough economic growth to offset their own cost.

Overview of the One Big Beautiful Bill Act

The One Big Beautiful Bill Act primarily extends the 2017 tax reform measures, which include:

• Reduction in Top Personal Income Tax Rate: Lowering the top rate to 37%.
• Increase in Standard Deduction: Simplifying tax filing by minimizing the need for itemization.
• Corporate Tax Rate Reduction: Decreasing the corporate tax rate to 21%.

These changes are set to remain in effect for ten more years, contributing significantly to the bill's total cost.

Arthur Laffer's Perspective

A central voice in the episode is Arthur Laffer, a renowned economist known for the Laffer Curve, which posits that there is an optimal tax rate that maximizes revenue without hindering economic growth. Laffer, who has advised multiple Republican administrations, advocates strongly for the tax cuts.

Notable Quotes:

• Arthur Laffer (03:33): "The Tax Cuts and Jobs Act extension is really important for the prosperity of this country."
• Arthur Laffer (04:33): "They paid for themselves more than that. They've created a lot of prosperity. Poverty rates went way down."

Laffer argues that lower tax rates stimulate economic activity, leading to increased tax revenues despite the initial cuts. He cites historical instances under Presidents Reagan, Clinton, and Trump to support his claims that tax reductions can foster economic prosperity.

Counterpoints from Tax Economists

Contrasting Laffer's optimistic view, the episode features insights from Erica York, Vice President of Federal Tax Policy at the Tax Foundation. York and other mainstream economists present a more skeptical analysis of the tax cuts' efficacy in self-financing.

Notable Quotes:

• Erica York (05:11): "It's really just a myth that a tax cut can pay for itself."
• Erica York (05:19): "If you lower tax rates on work, people might work some more. Or if you lower tax rates on business investment, businesses might invest more. You get a little bit more tax revenue. Than you otherwise would have. But you're still starting from that lower bar of the tax cut."

Key Points from Economists:

• Limited Revenue Offset: While tax cuts may stimulate some economic growth, the Tax Foundation estimates that only 19% of the tax cut's cost will be offset by increased revenues from growth.
• Deficit Concerns: The extension is expected to cause the federal debt to rise to approximately 130% of GDP by 2034, up from 117% under current projections.
• Academic Consensus: Multiple reputable institutions, including the Congressional Budget Office, Brookings Institution, and the Tax Policy Center, concur that the tax cuts will not fully pay for themselves and will exacerbate government deficits.

Impact on Government Debt and Deficits

The episode underscores the fiscal implications of the tax bill, highlighting that:

• Increased Deficits: The bill is projected to significantly increase federal deficits, limiting the government's ability to allocate funds to other critical areas.
• Interest Payments: Future interest payments on the debt will rival current defense spending, further constraining governmental budget flexibility.

Notable Quote:

• NPR Host (07:45): "It's significantly going to increase deficits. We're spending as much on interest payments on our debt as we are on defense."

Conclusion and Future Outlook

The debate between proponents like Arthur Laffer and skeptical economists illustrates the complexity of tax policy and its long-term effects on the economy. While tax cuts may provide short-term economic boosts, the consensus among mainstream economists suggests they are unlikely to fully self-finance, leading to increased national debt and limited fiscal room for future government initiatives.

Final Thoughts:

• Balanced Perspective: The tax cuts offer modest economic growth benefits but require realistic expectations regarding their ability to offset their own cost.
• Ongoing Analysis: The hosts promise to continue exploring the ramifications of the One Big Beautiful Bill Act in future episodes, examining its impact on businesses, workers, and the broader economy.

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Production Credits:
Produced by Cooper Katz McKim
Engineering by Robert Rodriguez
Fact-Checked by Corey Bridges
Edited by Kate Concannon
The Indicator is a production of NPR.

Transcript

[NPR Host]

Npr.

[Darian Woods]

As we were all putting coals on the barbecue and listening to the crackle of fireworks last week, it was hard to avoid the news that President Trump's one big beautiful Bill act became law. What is notably big about it is how much it will cost the government $3.4 trillion over 10 years, according to the Congressional Budget Office. The pricier section is extending a lot of the 2017 tax cuts and adding.

[Waylon Wong]

Some new ones, but the Trump administration's Council of Economic Advisers says the cost is actually much, much lower. In fact, it says the tax cuts will pretty much pay for themselves. This is a multitrillion dollar difference in opinion, and it's one you hear echoed by some Republican lawmakers. So we wanted to investigate this claim. This is the indicator from Planet Money. I'm Waylon Wong.

[Darian Woods]

And I'm Darian Woods. Today on the show can the tax cuts pay for Themselves? We talk to the guru of the school of thought, Arthur Laffer, and we fact check those claims with a tax economist.

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[Darian Woods]

Bill passed last week was the extension of the 2017 tax cuts from the first Trump administration. There were a lot of tax changes back then, but just to give you a flavour, the top personal income tax dropped a few percentage points to 37%.

[Waylon Wong]

The standard deduction increased a lot too, meaning most people didn't have to itemize all the little deductions they could make. That made life easier for a lot of us.

[Darian Woods]

The US corporate tax rate was lowered a lot, to 21%. But most of these big changes were temporary, so extending Them now explains why the One Big Beautiful Bill act is so expensive. Or does it?

[Arthur Laffer]

Hello.

[Darian Woods]

Glad you could join me.

[Waylon Wong]

This is Arthur Laffer. He is a luminary in conservative circles. He advised Nixon and Reagan.

[Arthur Laffer]

I made a vow never to take money from government ever again.

[Darian Woods]

He still advises presidents, though, including now Donald Trump, but he says that's pro bono. Those meetings cover a lot of ground.

[Arthur Laffer]

You're exhausted after coming out of a meeting with him.

[Waylon Wong]

There's an economic chart that is Arthur Laffer's namesake, the Laffer Curve.

[Arthur Laffer]

I didn't name it that, but I did use it a lot in the 60s and 70s and 80s. And it's.

[Darian Woods]

That curve shows that at some point a higher tax rate will actually result in a lower tax take for the government. That's because economic activity slows if it's taxed too much. In other words, sometimes tax cuts can pay for themselves.

[Waylon Wong]

Now, it's controversial exactly where this point is. Is it 20% or 80%? But the general idea that lowering taxes can boost economic growth is why Arthur Laffer applauds the One Big Beautiful Bill Act.

[Arthur Laffer]

The big numbers there, I think, are quite good for the economy. I mean, we need to not have a big tax increase. We need that. I think it's done well on spending compared to the Democrats, the other side, it's not great. I'd like to see much bigger cuts.

[Darian Woods]

And at the heart of what appeals to Arthur is the Big Bill's extension of the 2017 tax cuts.

[Arthur Laffer]

I think the Tax Cuts and Jobs act extension is really important for the prosperity of this country.

[Waylon Wong]

In fact, Arthur claims that last time the tax cuts actually brought in more revenue.

[Arthur Laffer]

They paid for themselves more than that. They've created a lot of prosperity. Poverty rates went way down. The lowest levels, especially for minorities, disenfranchised, lower educated youth.

[Darian Woods]

What you're saying about the 2017 tax cuts, that's not an uncontested view.

[Arthur Laffer]

No, it is uncontested. This is not about opinions. This is not about how you feel. This is about facts. Federal revenues went up after the bill passed, that's fact. Unemployment rates went down after the bill passed, that's fact. Our growth rate accelerated relative to the Eurozone. That's a fact.

[NPR Host]

It's really just a myth that a tax cut can pay for itself.

[Waylon Wong]

Erica York is vice president of Federal Tax Policy at the Tax Foundation.

[NPR Host]

If you lower tax rates on work, people might work some more. Or if you lower tax rates on business investment, businesses might invest more. You get a little bit more tax revenue. Than you otherwise would have. But you're still starting from that lower bar of the tax cut. So you may make up some revenue, but you're not going to pay for an entire tax cut.

[Darian Woods]

Erica says that yes, tax revenue might have trended up after the 2017 tax cuts, or there might have been economic growth, but more sophisticated analysis is needed.

[NPR Host]

The part that really matters is what would have happened without the tax cut. And you need to compare what did happen with the tax cut to the world without the tax cut.

[Waylon Wong]

In other words, correlation doesn't mean causation. The world is complex.

[NPR Host]

There are careful academic studies that go in and try to estimate that and what they tell us, some of the best that have been done find that, yeah, it was good for the economy, it boosted business investment, it to some extent boosted wages.

[Waylon Wong]

But when you control for all the different forces in the economy, the Tax foundation has a much less rosy view.

[NPR Host]

Our modeling of this current tax bill suggests that economic growth will pay for about 19% of the tax cut.

[Darian Woods]

That 19% is actually more optimistic than most other policy think tanks estimates.

[NPR Host]

Politicians make these wild claims, you know, the tax cuts are going to pay for themselves.

[Darian Woods]

The academics always pouring cold water over the big claims.

[NPR Host]

Yeah. And then that gives people who are, you know, against the law. They say, well, the politicians were wrong. The story didn't play out. The tax cuts didn't do anything for growth, when really the truth is somewhere in between. Tax cuts did a little bit for growth, but we should be realistic about what to expect. Tax cuts aren't going to, like, juice the economy, but there are important improvements that can be made that make things better on the margin.

[Waylon Wong]

We presented these types of studies to Arthur Laffer, but he was unmoved.

[Arthur Laffer]

These people are incorrect in their assessments of the economy. You know, tax rate reductions, especially on the upper ranges, are really ways of stimulating the growth in this economy. Look at what happened under Reagan. Look at what happened under Clinton. Look at what happened under Trump under Kennedy. Have you ever heard of an economy taxed into prosperity? It's just not common sense and it's not good academics either.

[Darian Woods]

If Eric is right, though, the bill is set to cause government debt to soar higher and higher.

[NPR Host]

It's significantly going to increase deficits. We're spending as much on interest payments on our debt as we are on defense. That's really eroding what the government can do because we're just spending so much to pay our debt.

[Waylon Wong]

The committee for a responsible federal budget estimates that the one big beautiful Bill act could mean the federal debt grows to around 130% of GDP by 2034. That's up from 117% under the status quo. Arthur Laffer, Donald Trump and the President's Council of Economic Advisers don't believe that. They think growth unleashed in the economy will offset the lower tax rates.

[Darian Woods]

On the other side, you have Erica York and the Tax foundation, the center on Budget and Policy Priorities, the Tax Policy center, the Brookings Institution.

[Waylon Wong]

You also have the Congressional Budget Office, the Joint Committee on Taxation, the Penn Wharton Budget Model, and the Budget Lab at Yale.

[Darian Woods]

Pretty much every mainstream budget think tank in the US they all come to the same conclusion. These tax cuts mean less money for government. We'll be digging into the One Big Beautiful Bill act over the coming weeks, learning how it affects US Businesses, workers and you. Stay tuned. This episode was produced by Cooper Katz McKim with engineering by Robert Rodriguez. It was fact checked by Corey Bridges. Kate Concannon edits the show and the indicator is a production of npr.

[NPR Sponsor]

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