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The Great Republican Tax Cut Scam of 2015

October 13, 2014

"Reality," Stephen Colbert famously explained to President George W. Bush, "has a well-known liberal bias." And for Republicans, reality bites most when it comes to tax cuts. After all, for over 30 years, tax cuts have been the GOP's one and only prescription for both economic booms and busts, recessionary slowdowns and budget surpluses, and probably even male pattern baldness and erectile dysfunction. Ever since Arthur Laffer first bottled his supply-side snake oil, the GOP's best and brightest have promised that the explosion of economic activity unleashed by lower tax rates would more than offset the tax revenue lost. That's why, as President Bush boasted, "tax cuts pay for themselves" and why, as former Arizona Senator John Kyl lectured, "you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans."
Of course, things didn't work out that way. In eight short years, President Ronald Reagan tripled the national debt. George W. Bush nearly doubled it again. (The Bush tax cuts made permanent in 2013 still continue to produce red ink into the indefinite future.) But Laffer's supposed supply-side miracle failed because it had to. No other outcome was possible. As Austan Goolsbee summed it up two years ago:

Moon landing was real. Evolution exists. Tax cuts lose revenue. The research has shown this a thousand times. Enough already.

To put it another way, the budgetary math simply cannot work. Which is why Paul Ryan and his Republican allies instead 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.

That's the word from Paul Ryan (R-WI), the current House Budget Committee Chairman almost certain to take over the gavel of the Ways and Means Committee in January. As the failed 2012 GOP vice presidential nominee 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.

"Not correct," that is, in the preventing observers from erupting in laughter every time Paul Ryan proposes to balance the budget while delivering a massive tax cut windfall for the wealthy.

For four years, Ryan 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. Each and every time 95 percent of Congressional Republicans voted for it. Yet each every time, reality intervenes. Far from producing a balanced budget within a decade, Ryan's budgets always produce almost $6 trillion in new debt. That's because the self-proclaimed "courageous" Mr. Ryan is too cowardly to identify a single tax break he'd close, breaks that now cost the United States Treasury about $1.3 trillion a year. Would he end the home mortgage deduction? The Earned Income Tax Credit (EITC)? The carried interest exemption? The deduction for state and local taxes? His "base-broadening" depends on ending about $6 trillion in loopholes in 10 years, yet as this 2012 statement typically shows, Paul Ryan never will answer the question:

"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."

As it turns out, this year Dave Camp finished his work on tax reform. And predictably, Ryan and House Speaker John Boehner declared it dead on arrival. They aborted Camp's much-hyped plan for the same reason Ryan always kept secret his list of tax breaks to kill: the changes are wildly unpopular.
So, for Republicans the only alternative to the horrible math and even worse politics of tax reform is to change math itself. That process is already underway. In the 2014 version of his "Path to Prosperity," Chairman Ryan baked in $175 billion of magical revenue gains from the steep tax cuts he proposed by labelling them "Macroeconomic Fiscal Impacts." And as Jamelle Bouie recalled:

Dynamic scoring is key to the supply-side case. With the right assumptions, a dynamic score can make tax cuts the free lunch of public policy. For example, in his 2012 Path to Prosperity, Ryan said that his tax cuts and budgetary policies would create "nearly 1 million new private-sector jobs," bring the unemployment rate down to "4 percent by 2015," and increase "real GDP by $1.5 trillion over the decade." The proof? A dynamic score calculated by the right-wing Heritage Foundation.

Ryan is not alone. In 2014, the House by a 224 to 182 vote passed the "Pro-Growth Budgeting Act," that would require dynamic scoring of major legislation before it comes up for a vote. And in 2013, several Democrats joined their Senate GOP colleagues in passing an amendment by Rob Portman (R-OH) requiring the CBO score tax reform using, as the Wall Street Journal rejoiced, "a dynamic model [that] would predict a large revenue windfall from the overall increase in investment and economic efficiency."
As James Valvo, policy director at Americans for Prosperity put it, "This is something that remains important to us."

Important, with good reason. After all, 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 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.
Starting, it turns out, with Ronald Reagan. As most analysts predicted, Reagan's massive $749 billion supply-side tax cuts in 1981 quickly produced even more massive annual budget deficits. Combined with his rapid increase in defense spending, Reagan delivered not the balanced budgets he promised, but record-setting debt. Even his OMB alchemist David Stockman could not obscure the disaster with his famous "rosy scenarios."
Forced to raise taxes eleven times to avert financial catastrophe, the Gipper nonetheless presided over a tripling of the American national debt to nearly $3 trillion. By the time he left office in 1989, Ronald Reagan more than equaled the entire debt burden produced by the previous 200 years of American history. It's no wonder that, three decades after he concluded "the supply-siders have gone too far," former Arthur Laffer acolyte and Reagan budget chief David Stockman lamented:

"[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."

When George W. Bush and Dick Cheney ambled in the White House in January 2001, they weren't shy about making that same point. As Vice President Dick Cheney famously declared in 2002, "Reagan proved deficits don't matter." (Not, that is, unless a Democrat is in the White House.)
Inheriting a federal budget in the black and CBO forecast for a $5.6 trillion surplus over 10 years, President George W. Bush quickly set about dismantling the progress made under Bill Clinton. In 2001, Bush signed a $1.4 trillion tax cut, followed by another $550 billion round in 2003, the first war-time tax cut in modern American history. (It is more than a little ironic that Paul Ryan at the time called the tax cuts "too small" because he believed the estimated surplus Bush would later eviscerate would be even larger than predicted.) In keeping with Republican orthodoxy that "tax cuts pay for themselves," President Bush confidently proclaimed:

"You cut taxes and the tax revenues increase."

As it turned out, not so much.

Federal revenue did not return to its pre-Bush tax cut level until 2006. As a share of American GDP, tax revenues peaked in 2000; that is, before the Bush tax cuts of 2001 and 2003.
Analyses in 2010 by the Center on Budget and Policy Priorities concluded, the Bush tax cuts 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. By the time he shuffled out of the Oval Office in January 2009, President Bush bequeathed a $3.5 trillion budget and a $1.2 trillion annual deficit to his successor, Barack Obama.

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.'"

You almost can't blame Republicans for trying to redefine "reality." After all, it has a well-known liberal bias.


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

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