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Paul Ryan's Triple Scam on Tax Reform

November 24, 2014

This week, House Republicans selected Wisconsin Rep. Paul Ryan as the next chairman of the powerful House Ways and Means Committee. That lofty perch, the AP was quick to proclaim, gives Ryan "a high-profile platform if he decides to run for president in 2016 or beyond."
But that's not the only perk for Mitt Romney's 2012 running mate. His plans to privatize Social Security, shelved due to their consistent unpopularity, will be back on the front burner. Ryan's ploy to ration Medicare by replacing the guaranteed system of government insurance for the elderly with an under-funded voucher scheme that will dramatically shift health care costs to seniors will return as well. Despite having repeatedly warned America about "takers" and lazy men "in our inner cities" who are turning "the safety net into a hammock," Chairman Ryan is recasting himself as an anti-poverty crusader. And above all, Paul Ryan wants to use his move from the Budget to the Ways and Means Committee to advance his dream of tax reform that "lowers rates and broadens the base."
But to realize his dream, Congressman Paul Ryan is perpetrating the greatest public policy con game since Arthur Laffer first sketched his laughable curve. Faced with the inescapable historical truth that tax cuts don't pay for themselves but instead have only increased the national debt and income inequality, Ryan turned to a three-part fraud to deceive the American press and the American people. Call it Paul Ryan's Triple Scam:

  1. Promise to Close Trillions in Tax Loopholes. Needing to find almost $6 trillion over the next decade to fill the massive revenue hole left by his tax cuts, Ryan promises to end or limit many of the myriad tax breaks, loopholes and credits which cost Uncle Sam about $1.3 trillion a year.
  2. Refuse to Say Which Loopholes. Ending popular tax breaks, many of which benefit the middle class, is politically dangerous. So when pressed, Ryan refuses to name a single loophole he'd close, or say it someone else's job to figure that out.
  3. If the Math Still Doesn't Work, Change the Way Math Works. When it comes to the ending $500 or $600 billion in tax breaks every year, the politics of producing a "revenue-neutral" budget are brutal and the math is even worse. So, Paul Ryan is demanding the Congressional Budget Office (CBO) use so-called "dynamic scoring" to magically generate new revenue from the extra economic activity his rate cuts theoretically produce.

As it turns out, Ryan's Triple Scam has been underway for almost five years.
Step #1: Promise to Close Trillions in Tax Loopholes
Since 2010, he has offered some variant of his "Path to Prosperity" budget providing almost $5 trillion in tax cuts over 10 years with just two rates of 10 and 25 percent, slashing corporate taxes, repealing Obamacare and gutting social spending. While almost 70 percent of Chairman Ryan's spending cuts come from programs impacting poor and moderate income voters, already starved non-defense discretionary spending as a percentage of the U.S. economy would plummet to its lowest level since 1950.

Paul Ryan's budget would make poverty worse.

Meanwhile, over its first decade, Ryan's $5.7 trillion in tax cuts would deliver 55 percent of their benefits to the richest one percent of Americans. A family earning $1 million a year would pocket $330,000 a year while seeing its effective tax rate plummet to 15.4%.

Paul Ryan's House GOP budget delivers a massive tax cut windfall for the wealthy,

Yet even while-and precisely because-- it pads the bank accounts of the gilded class, the Ryan budget inevitably drains trillions from the U.S. Treasury. So much balancing the budget in 10 years.

Faced with oceans of red ink as large as $6 trillion in the various incarnations of his budget, Paul Ryan offered magic formula for plugging the mammoth hole. He explained Step #1 of the Triple-Scam to MSNBC's Joe Scarborough in March 2012:

"Get rid of the special interest loopholes, special deductions, lower everybody's tax rates, bring in at least as much revenue to the government but grow the economy and create jobs, and get spending under control so we can pay off this debt."

But that answer only raises another question: Which of these "special interest loopholes" and "special deductions" would the Republicans' favorite wonk get rid of? Two and a half years later, it's a question Paul Ryan still refuses to answer.
Step #2: Refuse to Say Which Loopholes

The top 10 most popular tax breaks.

The identities of mystery tax breaks have always been the problem with Ryan's bragging that his plan will "prevent an explosion of debt from crippling our nation and robbing our children of their future." Matthew Yglesias rightly mocked the 2012 version of Ryan's tax reform blueprint for cowardly avoiding those politically tough choices:

Thirteen pages dedicated to explaining his vision for revenue-neutral tax reform. And even so he manages to not name a single tax deduction that he's planning to eliminate. Home mortgage interest deduction? I dunno. Electric vehicle tax credit? I dunno. Deductibility of state and local income taxes? I dunno.

If Ryan knew, he wasn't saying. As the Washington Post documented in 2011, the trillion-plus dollars in annual tax expenditures isn't just larger than Uncle Sam's total take from the income tax each year, but the "ever-increasing tax breaks for U.S. families eclipse benefits for special interests."

The value of U.S. tax breaks now equals the total take from income taxes.

That's right. Much of the estimated $1.3 trillion in annual tax expenditures in 2015 (a figure almost triple the size of the entire 2014 budget deficit and equivalent to about a third of annual federal spending) benefit working and middle income Americans. For example, the home mortgage tax deduction was worth $89 billion in 2011. Tax-deferred 401K accounts cost the Treasury $63 billion. The Earned Income Tax Credit had a similar $63 billion price tag that same year.

Tax expenditures cost the U.S. Treasury over $1 trillion a year.

So what deductions and loopholes are actually in the mystery meat that is Paul Ryan's budgetary dog food? As Paul Krugman explained in "Pink Slime Economics" back in the spring of 2012:

We're talking about a lot of loophole-closing. As Howard Gleckman of the nonpartisan Tax Policy Center points out, to make his numbers work Mr. Ryan would, by 2022, have to close enough loopholes to yield an extra $700 billion in revenue every year. That's a lot of money, even in an economy as big as ours. So which specific loopholes has Mr. Ryan, who issued a 98-page manifesto on behalf of his budget, said he would close?
None. Not one. He has, however, categorically ruled out any move to close the major loophole that benefits the rich, namely the ultra-low tax rates on income from capital. (That's the loophole that lets Mitt Romney pay only 14 percent of his income in taxes, a lower tax rate than that faced by many middle-class families.)

Who benefits from U.S. tax breaks?

But the kind of cowardice Krugman, Yglesias and others highlighted didn't just manifest itself in Ryan's silence. Making those tough calls on tax breaks, the GOP's vice presidential nominee insisted, wasn't his job. But when host Joe Scarborough asked "Which one of those [loopholes] do you eliminate," Ryan chickened out:

"We want to do this in the light of day and in front of everybody. So the Ways and Means Committee, which is in charge of the tax system, sent us the plan here, which is a 10 and 25 percent bracket for individuals and small businesses, and then they want to have hearings and, in light of day, show how they would go about doing this."

Appearing on CBS Face the Nation just days later, Ryan again claimed that "We're proposing to keep revenues where they are, but to clear up all the special interest loopholes, which are uniquely enjoyed by higher income earners, in exchange for lower rates for everyone." But he once again pleaded the Fifth when asked which "special interest loopholes" he would do away with:

"That's what the Ways & Means Committee is supposed to do. That's not the job of the Budget Committee," Ryan said on Fox News Sunday. "What we're saying is, we want to do this in the light of day, not in some backroom deal. We want to have hearings in the Ways & Means Committee that Chairman Dave Camp has already started that work, to say what tax benefits should go."

But much to the dismay of Senate Minority Leader Mitch McConnell, House Speaker John Boehner and House Budget Committee Chairman Paul Ryan, Dave Camp (R-MI) finished his work. When the going got tough, the current Ways and Means Committee chief made the tough calls on loopholes he'd limit, deductions he would cap and tax breaks he would end. (Some of them, like further limiting the mortgage interest tax deduction and ending the deduction for state and local taxes, would have disproportionately impacted blue state residents.) And when Camp delivered it in February 2014, it was dead on arrival. And it was the Republicans who killed it. As Forbes reported earlier this year:

You can only stall so long on the details of tax reform. On February 26 the clock ran out. House Ways and Means Committee Chair Dave Camp, R-Mich., provided 194 pages of details, and now tax reform gold has turned to dust. The political damage will mainly be to Republicans who made tax reform part of their brand.
Where do we go from here? "I think we will not be able to finish the job, regretfully. I don't see how we can," said Senate Minority Leader Mitch McConnell, R-Ky. And when asked if he would allow a vote on the Camp draft, House Speaker John A. Boehner, R-Ohio, could only respond with what may be the quote of the year: "Blah, blah, blah."

After years of promising Americans that the Ways and Means Committee would answer the $6 trillion tax break question, Paul Ryan turned his back on Chairman Camp:

He's a leading voice for Republicans on fiscal policy but Rep. Paul Ryan is noticeably restrained when it comes to his party's new blockbuster tax plan.
While applauding Ways and Means Committee Chairman Dave Camp's "courage" for releasing a comprehensive tax overhaul on Wednesday, Ryan (R-Wis.) ducked questions on the proposal's substance. He simply said he's excited to start a conversation about rewriting the tax code.
"This is the beginning of a good debate," Ryan said in an interview.

As Politico noted, "Other Republicans haven't shied away from expressing concerns about introducing legislation during an election year that puts in plain view the difficult choices that must be made to overhaul the code." It's no wonder Dave Camp has had enough of Congress. And when he leaves at the end of this year, Paul Ryan will pick up his gavel at the House Ways and Means Committee in 2015.
Step #3: If the Math Still Doesn't Work, Change the Way Math Works
Paul Ryan may have the gavel, and with it, a soapbox for a possible 2016 White House run. But he still has a problem. Ryan said it would fall to the House Way and Means boss to solve the riddle of which tax breaks will have to go as part of his tax reform plan. But answering that question hasn't gotten any easier politically. And now, Ryan himself is the Ways and Means Committee chairman.
Which is where Step #3 of Ryan's Triple Scam comes in. It's an awful lot easier to close a $6 trillion hole if the hole doesn't add up to $6 trillion. To put it another way, if the math is still ugly, simply change the way math works.
As Lori Montgomery of the Washington Post revealed on Thursday, Ryan isn't preemptively blaming the failure of tax reform on President Obama. The man Charles Pierce calls the "zombie-eyed granny starver" plans to change the way the nonpartisan Congressional Budget Office calculates the impact of tax cuts:

Earlier this year, Camp released a tax reform draft that showed the enormous difficulty of achieving Ryan's goal of getting tax rates down to 25 percent.
Ryan has said it would be easier to hit that target if the Congressional Budget Office used a process called "dynamic scoring" to measure broad effects on the economy when judging tax legislation. While CBO already uses dynamic scoring on a limited basis, Ryan said Wednesday he will have additional recommendations in the new Congress "for making sure we take these things into consideration."

As the Center on Budget and Policy Priorities (CBPP) warned in response, "Budget and tax plans should not rely on 'dynamic scoring' because the estimates it produces are "highly uncertain and subject to manipulation." Which is precisely why Paul Ryan and his Republican allies want to change the way math itself works as soon as they control both chambers of Congress. And if they succeed, voodoo economics will become a feature, not a bug.
In September, Ryan promised the Wall Street group, the Financial Services Roundtable, "I'd like to improve our scorekeeping so it better reflects reality." By "improve our scorekeeping," Ryan means forcing the nonpartisan Congressional Budget Office (CBO) to change the way it forecasts (or "scores") the impact of tax and budget legislation. And by "better reflects reality," Paul Ryan means rigging the outcome so GOP tax-cutting bills don't appear to hemorrhage the red ink they inevitably must. As The Hill reported:

Ryan said if Republicans take control of the Senate, they will be able to calculate the price tag of legislation differently. Republicans have long pushed for the Congressional Budget Office to use "dynamic scoring" when calculating the costs of legislation. Currently, the CBO scores legislation using static scoring, which does not take into account how behavioral changes brought on by legislation could in turn alter how much a particular provision costs.
But Ryan and Republicans argue that adopting a new scoring method would make it easier to adopt revenue-neutral policies, and also paint a more accurate picture. If the GOP controlled Congress, they could change the calculation methods employed by the CBO.
"The scorekeeping we use is not correct," he said.

Ryan's crusade to magically whitewash red ink has been a Republican cause for decades. to one degree or another, pretty much every major Republican tax cut scheme from Reagan in 1980, Dole in 1996 and Bush in 2000 to Mitt Romney in 2012 and Paul Ryan's "Path to Prosperity" budget have claimed that the hemorrhage of revenue for the U.S. Treasury from their gargantuan tax cut windfalls for the gilded-class would be offset by "macroeconomic feedback", or bigger collections from a supposedly surging economy. Without resorting to the sleight of hand that is dynamic scoring, these GOP budgets invariably produce red ink as far as the eye can see. That's why House Republicans last proposed H.R. 3582 (the "Pro-Growth Budgeting Act") to require that the CBO estimates also use dynamic scoring to incorporate "supply-side assumptions about the growth-generating magic of tax cuts into official budget estimates, enabling conservatives to evade the deficit-boosting implications (and various congressional barriers that come along with them) of their pet proposals for reducing the tax burden of 'job creators.'"

Most analysts have encouraged the Congressional Budget Office and other forecasters to steer clear of dynamic scoring for two very compelling reasons. First, there's no consensus on how to model it, making the process ripe for manipulation and political chicanery. As former deputy assistant director for tax policy at the Congressional Budget Office and current fellow at the Tax Policy Center Roberton Williams warned:

"We really don't understand the science well enough to do it right. The assumption built into the model determines, in large part, what comes out of the model. There's going to be conflict unless there's some agreement on what ought to go in."

But it's not just that "there's a great deal of uncertainty" about "the right way to model things," as TPC's Donald Marron put it. There's also the matter of the historical record: for over 30 years, bogus conservative claims about the revenue-increasing effects of tax cuts have been proven cataclysmically wrong.

It's worth noting that current conservative economic propagandist and former McCain economic adviser Douglas Holtz-Eakin couldn't make the dynamic scoring alchemy work for the Bush administration, either:

In 2003, Doug Holtz-Eakin was appointed by Republicans to lead the CBO during the Bush years, and he came under intense pressure to use more dynamic analyses. But studies he commissioned found that dynamic scoring was devilishly complicated and wouldn't lead to drastically different estimates. As he explained in a 2011 hearing before the House Ways and Means Committee, "it is unlikely to change the bottom line very much over the budget window."

Despite the bitter experience of the Bush years, Mitt Romney made the same GOP shell game part of his tax plan in 2012. As Ezra Klein suggested in "The Dynamic Dodge in Romney's Budget," Mitt's scheme once again resurrected David Stockman's "magic asterisk":

As a matter of theory, stronger economic growth could make Romney's plan work...if Romney really could double or triple the pace of economic growth, it would be much easier to make his numbers add up...
The technical term for the secret sauce that Romney is using in his budget projections is "dynamic scoring." The idea is that tax cuts make the economy grow faster. They make people work harder. They persuade rich people to stop hiding money away. And thus they don't cost as much as a "static analysis" -- one that didn't take into account all these effects -- would suggest.

As it turns out, Romney's 20 percent tax cut plan was basically the same one Bob Dole ran on--and lost on--in 1996. And the architect of that debacle, former Reagan Treasury official Bruce Bartlett, has long since recanted his support for the "dynamic scoring" at the heart of virtually every Republican tax plan. As Bartlett put it in 2012:

As the budget deficit increasingly inhibits Republicans' tax-cutting, they are planning ahead for tax cuts that they will insist are costless because they will so massively increase growth. But for that approach to work, the C.B.O. and the Joint Committee on Taxation, Congress's official budget and tax estimators, need to be forced to play along...
My concern is that the Republican effort is just a smokescreen to incorporate phony-baloney factors into revenue estimates to justify unlimited tax cutting...In other words, it is an issue of credibility. Republicans don't really care about accurate revenue estimates; they just want them to show that tax cuts pay for themselves, so they can pass more of them without constraint.

Constraints, that is, like the facts, the truth and the unchangeable principles of basic math. That's why Paul Ryan wants to rename the new math he and his GOP friends demand the Congressional Budget Office use:

"He also noted that he prefers the term 'reality-based scoring' over 'dynamic scoring.'"

Americans can be forgiven for thinking that sounds like a scam. After all, Paul Ryan's reality is really a Triple Scam.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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