The economic gamble inside the White House tax plan

The Biden administration is selling its latest tax bill as a fiscally responsible measure—claiming that it will pay for itself through economic growth, investment, and productivity gains. But a closer inspection of the math behind those claims reveals a troubling pattern: the numbers depend more on wishful thinking than economic reality.

At the heart of the proposal is a political gamble. By lowering corporate taxes and offering targeted incentives, the White House hopes to spark growth robust enough to fill the revenue hole the bill creates. Yet independent analyses—from the Congressional Budget Office (CBO) to nonpartisan think tanks—suggest the administration’s estimates are not just optimistic, but implausible.

In essence, this is a debate not just about numbers, but about trust: Can governments responsibly forecast their way into fiscal solvency? Or is this a rerun of past supply-side promises that overestimated returns and underestimated risks?

The White House’s forecast hinges on the theory of dynamic scoring—a budget method that adjusts revenue projections based on expected economic behavior. Lower taxes, the thinking goes, will unleash a wave of business investment, job creation, and wage growth. As the economy expands, more people pay taxes, effectively offsetting initial revenue losses.

This idea isn’t new. Versions of it were used to justify the Reagan-era tax cuts, the Bush tax reforms, and the Trump administration’s 2017 Tax Cuts and Jobs Act. In each case, policymakers promised that the resulting economic boom would recoup lost revenue. In practice, the promised windfalls rarely materialized. While GDP may have ticked up temporarily, deficits consistently widened.

Still, the Biden administration projects that this new bill—despite slashing corporate tax rates and introducing investment incentives—will be “revenue-neutral” over 10 years. It assumes a 0.4% annual increase in GDP growth tied directly to the tax changes. Yet the Penn Wharton Budget Model, the Committee for a Responsible Federal Budget, and even Moody’s Analytics peg the likely GDP boost far lower, between 0.1% and 0.2% at best.

The danger here is not just overconfidence—it’s policy design based on hypothetical upside. As one Brookings economist put it: “We’re not building policy off what the economy is—we’re building it off what we hope it might become.”

Set aside the optimistic growth forecasts, and the fiscal gap becomes clear. According to the CBO, even with some behavioral offsets, the bill would increase the deficit by $280 billion over the next decade. The Tax Policy Center puts the number closer to $500 billion when accounting for temporary provisions that will likely be extended.

One reason the gap is understated is the strategic use of sunset clauses. Many tax breaks in the bill are set to expire within a few years to make the package appear more affordable. But political reality suggests these provisions will be renewed—just as they have been in past tax packages. This sleight of hand hides the true long-term cost.

Meanwhile, revenue raisers meant to offset the tax cuts—like increased IRS enforcement and a global minimum tax for multinationals—have their own implementation hurdles. The IRS has faced budget constraints for years, and enforcement takes time to yield measurable gains. As for the global tax regime, it depends on coordination with dozens of countries—many of which remain noncommittal. Even if all assumptions hold perfectly, the margin for error is razor-thin. And in economic policymaking, thin margins rarely end well.

Beyond the numbers lies a bigger issue: what this approach does to the policymaking environment. When tax legislation is passed on the promise of growth that may never arrive, it forces difficult trade-offs later. Cuts to public programs. Debt ceiling brinkmanship. Erosion of trust in fiscal institutions.

For businesses, the short-term benefits—lower corporate tax rates, accelerated depreciation, R&D credits—may be offset by future volatility. If deficits balloon and growth stalls, there will be renewed pressure for tax hikes or budget austerity. This uncertainty can chill the very investment the bill intends to encourage.

For working families, the risks are even greater. Most of the bill’s benefits accrue to upper-income households and large firms, while middle- and lower-income Americans receive modest, often temporary relief. And when deficits rise, public programs—education, transportation, Medicare—are often first on the chopping block.

The political message being sent is troubling: fiscal responsibility can be bypassed if the spreadsheet says so. It replaces sober budgeting with narrative-driven modeling. As one former OMB official noted: “This is not forecasting. This is storytelling with numbers.”

Implications:

1. It sets a precedent for policy distortion.
If administrations rely on overly rosy projections to justify tax cuts, the budgeting process becomes disconnected from reality. Policymakers may prioritize what looks good on paper over what’s sustainable in practice. This undermines institutional credibility—from the CBO to the Treasury Department.

2. It increases the political cost of future fiscal action.
Eventually, deficits must be addressed—either through spending cuts, tax hikes, or both. But when a policy is sold as costless, walking it back becomes politically toxic. That limits the room for compromise, especially in a divided Congress.

3. It affects investor and business confidence.
Markets don’t just react to interest rates and inflation. They track policy credibility. A government seen as cooking its books loses trust—not just at home, but globally. This affects everything from Treasury bond demand to currency stability to foreign direct investment.

Tax policy should reflect economic reality, not political aspiration. The White House’s insistence that its tax bill will magically pay for itself is not just optimistic—it’s misleading. The use of dynamic scoring to justify trillions in cuts is a fiscal gimmick dressed up as analysis. And while this might pass muster on a press release, it fails the test of responsible governance.

We’ve seen this movie before. The 1980s, the early 2000s, and again in 2017. In each case, large tax cuts were sold as “pro-growth” and self-financing. And each time, deficits exploded, inequality widened, and policymakers were forced to scramble for solutions that never quite materialized.

There’s nothing wrong with debating the role of taxes in economic growth. But if that debate is to mean anything, it must be anchored in honest math. Otherwise, we’re not just risking red ink—we’re eroding the very foundations of democratic accountability.