For GOP, the Only Certainties are Debt and Tax Cuts
Some things never change. With some constants in life, like the invariable force of gravity or the sun rising in the east, that persistence is good news. (Imagine your morning coffee without them.) The bad news is that some myths, no matter how dangerous or thoroughly debunked, never seem to die.
This week, the greatest Republican zombie lie of them all--that tax cuts virtually pay for themselves--was once again exhumed for the American people.
Combined with his yet-to-be revealed plans for education reform and deregulation, Jeb Bush promised his new tax cut scheme "will unleash increased investment, higher wages and sustained 4% economic growth, while reducing the deficit." Unfortunately, the past 35 years show that every GOP president and would-be president since Ronald Reagan--including Jeb's brother George--failed to produce either an explosion of economic growth or bulging coffers for the U.S. Treasury. Instead, like the Gipper and Dubya, Bush and his rivals will deliver massive tax-cut windfall for the wealthy and trillions of dollars in new debt.
To be sure, Jeb! has the biggest credibility challenge of the 2016 Republican field, and not just because his brother presided over the worst 8-year economic record of any president since Herbert Hoover. Jeb, after all, has repeatedly promised to average 4 percent GDP growth during his tenure in the White House, an achievement last accomplished by Democratic presidents John F. Kennedy and Lyndon Johnson.
Worse still, no President named Bush ever hit that target once in 12 years sitting in the Oval Office.
But what the early estimates from conservative think-tanks and his own advisers conclude is that Jeb's "Reform and Growth Act of 2017" would produce a hemorrhage of red ink. As Benjy Sarlin of MSNBC explained:
Experts say some of the changes could dramatically explode the deficit. The conservative Tax Foundation estimated its price at a whopping $3.66 trillion over 10 years using traditional scoring methods and $1.6 trillion using dynamic scoring, which assumes conservative arguments that the cuts will unleash a surge of economic growth are correct. The gains would also be concentrated among the wealthy elite - the static score found that the richest 1% of Americans would enjoy an 11.6% gain in after-tax income, the richest 10% would get a 4.7% boost, and the bottom 80% would see a more modest bump between 1% and 3%.
The top line numbers are largely in line with an analysis by economists John Cogan, Martin Feldstein, Glenn Hubbard and Kevin Warsh distributed by the Bush campaign that pegged its cost at $3.4 trillion under static scoring and $1.2 trillion under their dynamic model.
Now, it's no surprise than Bush's plan represents a huge payday for the likes of Sheldon Adelson, Wal-Mart's Walton clan, their heirs and, of course, Jeb himself. Jeb intends to eliminate the estate tax, the alternative minimum tax (AMT) and condense the current 7 tax brackets to just three: 10, 25 and 28 percent. (Today's top marginal rate is 39.6 percent. While the estate tax impacts less than a quarter of one percent of all estates, it nevertheless raises roughly $240 billion in revenue for Uncle Sam over the next decade.) The top capital gains rate is reduced from 23.8 to 20 percent. The corporate tax rate is reduced to 20 from 35 percent (though today's businesses pay a small actual tax around 22 percent due to deductions and loopholes.) It's no wonder the wealthy and their children will pocket the lion's share of the trillions redirected from the Treasury.
After four decades of Arthur Laffer's supply-side snake oil, it's also no surprise that Jeb Bush's advisers claim that 65 percent of the additional $3.4 trillion in extra debt created by his tax cuts will be offset by the revved up U.S. economy they will incent. (Among his advisers are none other than Stephen Moore, Larry Kudlow and Arthur Laffer.) As the analysis authored by John Cogan, Martin Feldstein, Glenn Hubbard and Kevin Warsh forecasts:
We believe that the Governor's tax plan will create a higher growth economy to help generate sufficient revenues to fund the government's financial obligations. Employing conservative assumptions, we estimate that the tax reform plan itself will lead to at least five percentage points higher GDP by the end of a decade. The Governor's regulatory reforms - which will be unveiled separately --will increase GDP by at least an additional three percentage points by 2025. We conclude that the tax and regulatory policies alone will conservatively raise the growth rate of GDP by at least 0.8 percentage points per year during the 10-year forecasting period.
The right-wing Tax Foundation, which predicts Bush's individual and corporate tax cuts would drain $2.2 trillion and $1.1 trillion respectively from Uncle Sam's bottom line, is even more optimistic in its "dynamic scoring" of the Bush plan. As the Wall Street Journal gushed:
The Tax Foundation estimates that the Bush reforms, which include slashing the rates on both personal and corporate income, would lift U.S. GDP 10% above where it would otherwise be over the next decade. They also forecast wage increases of 7.4% and 2.7 million more jobs than would be created under current policy. They further calculate that the plan would provide a tax cut for every income decile. In other words, taxpayers up and down the earnings ladder would get relief.
Now, if you think you've heard this story recently, that's because you have.
Along with Utah Senator Mike Lee, 2016 White House hopeful Marco Rubio (R-FL) unveiled the "Economic Growth and Family Fairness Tax Reform Plan." With its two tax brackets (15 and 35 percent), lower corporate tax rate, and the elimination of both capital gains and estate taxes, Rubio's scheme would drain an estimated $2.4 trillion from the U.S. Treasury in order to fund a massive tax cut windfall for the wealthy. With his Steve Forbes-inspired flat tax of 14.5 percent on both individual and business income, Rand Paul (R-KY) would deliver even an even bigger payday for plutocrats while adding trillions to the national debt. How can Paul avoid that inevitable outcome? As Paul Waldman snickered, "Get ready for the pixie dust."
And because the best way to balance the budget and pay down government debt is to put Americans back to work, my plan would actually reduce the national debt by trillions of dollars over time when combined with my package of spending cuts.
Like Bush, both Paul and Rubio believe they can cauterize the bleeding of red ink through the magic of "macroeconomic feedback." Again, they claim, accelerated economic growth means tax revenues will still be healthy even at lower rates. Rand Paul has pledged that over a decade his "Fair and Flat Tax" will "increase gross domestic product by about 10 percent." Facing the tidal wave of red ink produced by Marco Rubio's tax plan, William McBride of the very same Tax Foundation turned to the alchemy of dynamic scoring to make an ugly picture much prettier. According to his model, over its first decade the Rubio-Lee plan would boost GDP by 15 percent more than the nonpartisan Congressional Budget Office (CBO) projects. And with his forecast of capital stock increasing by 50 percent, wages by 13 percent, work hours by 3 percent and jobs by 2.7 million, McBride presto-chango turned red ink black:
[T]he growth in the economy would eventually boost tax revenue, relative to current law. We find after all adjustments (again, about 10 years) that federal tax revenue would be about $94 billion higher on an annual basis. This is our dynamic estimate. Our static estimate, i.e. assuming the economy does not change at all, shows a tax cut of $414 billion per year. We believe the dynamic estimate is much closer to reality.
Just not any reality lived by any American since Ronald Reagan tried to turn Arthur Laffer's curve sketched on a cocktail napkin into actual policy. As Reagan's OMB Director David Stockman admitted in 1981:
"The whole thing is premised on faith. On a belief about how the world works."
But Stockman's belief in his "magic asterisk" of fantastical economic growth rates soon went the way of the Dodo bird. As it turned out, after Ronald Reagan tripled the national debt with his supply-side tax cuts, George W. Bush doubled it again with his own. Reagan's performance would have been much worse, had he not subsequently raised taxes 11 times to help make up the shocking shortfall. As Paul Krugman detailed in December, the numbers show that federal tax receipts grew faster both before and after Reagan:
Real revenue growth 36 percent in the 8 years before Reagan, 26 percent under Reagan, 28 percent in the years following.
The history of the Bush years, too, shows that the arc of the Laffer Curve bends towards fiscal catastrophe. Federal tax revenue did not return to its pre-Bush tax cut level until 2006. As the Center on Budget and Policy Priorities concluded in 2009, the Bush tax cuts of 2001 and 2003 accounted for half of the deficits during his tenure, and if made permanent, over the next decade would cost the U.S. Treasury more than Iraq, Afghanistan, the recession, TARP and the stimulus--combined. So much for the claims of those Republicans who still claim that "tax cuts pay for themselves."
It's no wonder that David Stockman lamented in 2010, "The supply-siders have gone too far."
"[The] debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party's embrace, about three decades ago, of the insidious doctrine that deficits don't matter if they result from tax cuts."
A 2012 survey conducted by the University of Chicago Booth School of Business showed the nation's leading economists would have given the likes of Arthur Laffer, Steve Forbes and Stephen Moore an "F." In a nutshell, not a single one of the economists surveyed agreed that "a cut in federal income tax rates in the US right now would raise taxable income enough so that the annual total tax revenue would be higher within five years than without the tax cut." In his comments, David Autor of MIT pointed out, "Not aware of any evidence in recent history where tax cuts actually raise revenue. Sorry, Laffer." Former Obama administration economist and current University of Chicago professor Austan Goolsbee put it this way:
Moon landing was real. Evolution exists. Tax cuts lose revenue. The research has shown this a thousand times. Enough already.
Now, in Jeb Bush's defense, his team has not pretended that tax cuts will fully pay for themselves. And his tax plan does contain some progressive elements. His doubling of the standard deduction and expansion of the Earned Income Tax Credit (lauded by Reagan as the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress") would mean an additional 15 million Americans would have no federal tax liability. And in another step to distance himself from Mitt "47 Percent" Romney, Bush calls for an end to both the carried interest exemption and the deductibility of corporate debt interest, the two tax breaks that made private equity fortunes like Romney's possible. (While Jeb sets a cap on deductions at two percent of adjusted gross income to avoid some of the worst gilded class giveaways in Romney's plan, he does eliminate the deduction for state and local taxes, a move designed to punish blue state taxpayers for their commitment to more robust public services.)
Nevertheless, as Jared Bernstein rightly concluded this week, Jeb Bush's new tax plan is "a revenue-eating wolf in sheep's clothing." It's no secret as to why. During the 1980 presidential primaries, George H.W. Bush described Ronald Reagan's plan to cut taxes, raise defense spending and balance the budget as "voodoo economic policy." Thirty-five years later, his son Jeb disagreed with his dad: "He was wrong about that."
Of course, history shows that Jeb is wrong about that and his declaration this week to right-wing radio host Hugh Hewitt:
"Tax policy, as we've seen over and over again, has a dramatic impact on economic activity."
We have not seen that over and over. Writing about Jeb's proposals in the Washington Post, Matt O'Brien explained why:
That's a lot of tax-cutting, but there isn't a lot of reason to think it'd help the economy that much. That's because, as William Gale of the nonpartisan Tax Policy Center puts it, "major changes in tax policy have had negligible impacts on the economy." Indeed, the economy took off after Bill Clinton raised taxes in 1993, but didn't after George W. Bush reduced them in 2001. Now, that's not to say that tax policy doesn't matter at the margin--it does--but just that the margin isn't that big. Even Ronald Reagan's 1986 tax reform, which sliced the top rate from 50 to 28 percent and axed a whole host of deductions, didn't, according to economists Alan Auerbach and Joel Slemrod, do that much for growth.
Which is why Jeb Bush and the GOP should stop playing their broken record about tax cuts magically increasing revenue. At long last, Republicans should just tell the truth. They simply believe that taxing Americans in general is bad, and taxing the rich is even worse.