Tax Cuts Pay for Themselves? Revival of Contested Theory.

A white cloth napkin, now displayed in the National Museum of American History, helped change the course of modern economics. On it, the economist Arthur Laffer in 1974 sketched a curve meant to illustrate his theory that cutting taxes would spur enough economic growth to generate new tax revenue.

More than 40 years after those scribblings, President Trump is reviving the so-called Laffer curve as he announces the broad outlines of a tax overhaul on Wednesday. What the first President George Bush once called “voodoo economics” is back, as Mr. Trump’s advisers argue that deep cuts in corporate taxes will ultimately pay for themselves with an explosion of new business and job creation.

The exact contours of the plan remained murky and Mr. Trump will not produce a fully realized proposal on Wednesday. But what the president has called a tax reform plan is looking more like a tax cut plan, showering taxpayers with rate reductions without offsetting the full cost by closing loopholes or raising taxes elsewhere. In the short run, such a plan would add many billions of dollars to the national deficit. Mr. Trump contends that it will be worth it in the long run.

“The tax plan will pay for itself with economic growth,” Steven Mnuchin, the Treasury secretary and main architect of the plan, told reporters this week.

The scope of the president’s plan, as it has leaked out in recent days, has excited the markets even as it has worried fiscal hawks. If this feels like a familiar debate, it is because it has played out repeatedly in the past four decades as the dominant Republican orthodoxy shifted from deficit reduction to tax cuts.

Presidents Ronald Reagan and George W. Bush both cut taxes deeply on the promise of economic payoffs, putting aside concerns about deficits, which grew during their tenures. Mr. Trump at points during the campaign talked tough about deficits, promising not only to eliminate them but also to wipe out in just eight years the entire $19 trillion in national debt that has accumulated over the history of the United States — a pledge so wildly unrealistic that even he has since dropped it.

Indeed, since taking office, Mr. Trump has made no sustained effort to rein in deficit spending. In his first partial spending plan, called a skinny budget, he proposed $54 billion in cuts to domestic and foreign spending programs, some of them quite deep, to pay for $54 billion in additional military spending. That would leave the bottom line unchanged. In the current fiscal year, which started under former President Barack Obama, the government is spending $559 billion more than it is taking in through taxes, according to the Congressional Budget Office.

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