Why Do the 10-Year Cost Estimates of the Trump 2.0 Tax Cuts Vary So Much?

Former Global Chief Economist (Ph.D. in Economics) & Global Keynote Speaker

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In a recent nonpartisan client presentation discussing the extension of the 2017 Tax Cuts and Jobs Act (TCJA), known as the Trump 2.0 tax cuts, I observed significant confusion among clients regarding the cost of this bill.

The main factor contributing to these discrepancies is the duration of the tax cuts and whether lower spending will accompany them. For instance, the House Budget Reconciliation bill includes spending reductions for Medicaid and the Supplemental Nutrition Assistance Program (SNAP) food stamp program. However, the President recently cautioned Republican House members not to f**k around with Medicaid, urging House Republicans to focus solely on eliminating waste, fraud, and abuse. Unfortunately, this will save only a small portion of the $880 billion that the House Republican bill aimed to offset the $5.0 billion revenue loss estimated by the nonpartisan Joint Committee on Taxation from extending the TCJA.

Temporary vs. Permanent Extensions

Another significant source of variation in cost estimates comes from the duration for which the tax provisions are expected to remain in effect. Under current law, the TCJA reduced individual taxes will expire at the end of 2025, while corporate tax cuts, on the other hand, were made permanent.

The nonpartisan Penn Wharton Model estimates a lower baseline cost of $4.6 trillion for extending the 2017 Tax Cuts and Jobs Act (TCJA), assuming that most of its provisions will expire by 2033.

However, if Congress decides to extend these provisions, even temporarily, the cost increases. The nonpartisan Congressional Budget Office (CBO) projects a $4.6 trillion cost under a temporary extension scenario. If these provisions become permanent, the fiscal consequences would escalate. The CBO warns that such permanence could lead to federal debt rising to 214% of GDP by 2054, up from about 100% today. The disparity here highlights a fundamental reality in budget forecasting: duration matters. Sunsets, whether genuine or political cover, significantly impact the scoring of legislation.

Economic Growth Effects (Static vs. Dynamic Scoring)

Another driver of differing cost projections is the use of static versus dynamic scoring. Static models calculate revenue loss without accounting for macroeconomic feedback, such as increased growth leading to higher tax receipts. Dynamic models attempt to incorporate those feedback loops.

The nonpartisan Tax Policy Center, using a static model, estimates the TCJA will reduce federal revenues by $5 trillion over 10 years. This approach assumes that the tax cuts do not spur any meaningful economic growth to offset the lost revenue.

In contrast, when dynamic models are used by the Tax Foundation and Penn Wharton Budget Model that incorporate expected growth effects, the results predict GDP increases of 0.3% to 0.4%, which slightly improves the fiscal picture, but not enough to close the revenue gap. Yet, even with these dynamic growth effects, projected deficits range from $4.0 trillion to $4.9 trillion.

The Brookings Institution is also considered nonpartisan, even though we want to alert our readers that this group often focuses on progressive issues, and offers an important caveat. Some dynamic models incorporate substantial spending cuts or policy changes that were not included in the Trump administration's tax plan. So while they do lower deficit projections, the question is whether those assumptions are realistic, causing some critics to label these dynamic model estimates less of a forecast and more of a wish list.

Spending Cut Assumptions

Closely tied to dynamic scoring is the question of offsetting spending cuts. The House Republican budget framework, for example, assumes $1.7 trillion in spending cuts (which is open to question if the President wants Medicaid untouched, except for “fraud, waste, and abuse”.

The Bipartisan Policy Center breaks down the cost of the House Reconciliation Bill into several components. The group estimates a $7.7 trillion reduction in federal tax revenues over 10 years, accompanied by $3.9 trillion in tax offsets. The result is a net cost of $3.8 trillion. The problem is that the sausage factory is still in operation. As we recently heard from the President’s visit to Capitol Hill, the tax offsets (e.g., reductions in Medicaid and SNAP’s food stamp program) are not etched in stone and remain a work in progress.

If these costs are implemented, lower-income households may experience net losses, while upper-income households retain most of the benefits from tax relief. This could weaken the stimulative effect of the tax cuts since lower-income families have a higher marginal propensity to consume than higher-income families, who will be unaffected by reductions in Medicaid and the SNAP food stamp program.

Interest Rate and Debt Servicing Costs

A commonly overlooked variable in these cost estimates is the impact of higher interest rates. Tax cuts increase federal borrowing unless offset, and borrowing becomes more expensive as interest rates rise.

The CBO estimates that if interest rates rise just one percentage point above current projections, the national debt as a share of GDP could balloon to 250% by 2054, which is higher than its 214% baseline.

Meanwhile, the Tax Policy Center incorporates $1.7 trillion in additional interest costs when projecting the long-term fiscal impact of the TCJA. These financing costs mean that tax cuts, even if economically stimulating, become more expensive in a high-rate environment. These factors remain largely absent from "headline" figures in political debates.

Summary and Concluding Thoughts Conclusion

The fiscal impact of the Trump tax cuts remains one of the most hotly debated issues in U.S. budget policy. The latest cost estimates range from as low as $3.3 trillion to over $5.1 trillion, depending on assumptions about sunsets, economic growth, interest rates, and spending offsets.

Models that exclude interest costs or assume that unlegislated spending cuts will be enacted into law will also result in lower cost estimates. Conversely, dynamic models that account for permanent extensions and increasing debt service costs produce much larger fiscal imbalances.

Ultimately, the answer to “how much will the extension of the 2017 TCJA tax cuts cost will depend less on arithmetic than on policy assumptions. Duration is also not just a technical detail—it’s the foundation on which every forecast is built.