Debt and Deficits

The GOP's New Tax Plan Proves Republicans Never Cared About the Federal Deficit

Republicans promised tax reform that wouldn't increase the debt. Their blueprint breaks that promise.

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Ron Sachs/dpa/picture-alliance/Newscom

You may remember a time when Republicans pretended to care about debt and deficits.

As deficits skyrocketed during President Obama's initial years in office, Republicans harped on the burdens imposed by high debt levels at every possible occasion. Fiscal responsibility was a particular fixation for Rep. Paul Ryan, who in 2011 accused Obama of playing games with the budgeting process by "dodging tough choices," and offering "no real plan to avoid a spending-driven debt crisis."

As recently as January of this year, Ryan, now Speaker of the House, was insisting that the GOP tax plan would be "revenue neutral"—balancing out any tax reductions by eliminating carve-outs in order to avoid increasing the nation's debt. He flatly dismissed the idea that Republicans would cut taxes without corresponding offsets.

But perhaps it's a mistake to take Ryan strictly at his word. The Speaker also predicted at the same time that congressional Republicans would repeal Obamacare, rewrite the tax code, and fund a border wall by August. Those with a working sense of the passage of time will have noticed that it is now the end of September, and none of these things have happened. (On the wall, at least, that is good news.)

Yesterday, however, a group of six top Republicans, including Ryan, did finally manage to release a tax plan. Or at least a partial plan. It's more of a sketch, really, a starting point, like a builder who begins work on a house design by saying that it should have some bedrooms, a bathroom, and a kitchen, probably. You have to start somewhere.

In other words, there's a lot we don't know about the tax plan, which is to say that there's a lot Republicans don't know about their tax plan. The framework released yesterday calls for reducing the current seven tax brackets down to three—or possibly four. It specifies the new rates for the three brackets, but doesn't say where the income ranges for those brackets would begin or end, making it difficult to figure out who would be affected and how. It proposes increasing the child tax credit, but doesn't say by how much. There will be a kitchen and some bathrooms and some bedrooms, but we're still not sure how many.

Among the details that Republicans have yet to work out is how, or even whether, to offset the tax cuts in order to avoid blowing up the deficit.

The current plan proposes about $5.8 trillion in tax reduction offset by about $3.6 trillion in base-broadening offsets, meaning that it would result in a $2.2 trillion deficit increase over the next decade, according to an estimate by the Committee for a Responsible Federal Budget. These estimates are rough, and based on the incomplete information provided by the GOP plan. The exact number might be higher or lower, but what's more important is the scale. The deficit, and the debt, would rise by a lot.

The Senate, meanwhile, has worked out an initial deal to allow for a tax cut that would increase the deficit by $1.5 trillion. These sorts of tax cuts are, in some sense, not really tax cuts, because they leave spending in place, and to spend is to tax. They are just delaying mechanisms, a way of postponing paying the tab for a decade or two.

Now that Republicans are poised to overhaul the tax code, they tend to hand wave away concerns about deficit-increasing tax cuts by declaring that what they are really interested in is economic growth, enough of which will make the budget problem moot. In discussions about tax policy, Republicans often use "growth" as a sort of coded shorthand, a way to say, "I don't care about the deficit" without saying the precise words, "I don't care about the deficit."

"The only way we're going to solve our long-term debt and deficit issue to allow the federal government to have the revenue it's going to need to fund all these promises made is with strong — and I mean strong — economic growth," said Senator Ron Johnson, told The New York Times.

"If we do it right, then the economy will be stimulated appropriately and tax revenues will go up and the deficit won't increase," Sen. John Kennedy (R-La.) told the paper.

Sorry, but there is no way to "do it right." Contrary to the persistent Republican dogma, tax cuts do not pay for themselves. Although they can boost growth sometimes, even in the most favorable circumstances, the growth effects are smaller than the total tax cut. For those who favor smaller government, this should be good news. If it turned out that tax cuts always resulted in a corresponding and equal increase in government revenue thanks to economic growth, then cutting taxes would simply be a recipe for maintaining government at its current size.

In the world we live in, if you want to offset the budgetary effects of tax cuts and avoid deficit increases, you have two choices: You can raise additional revenue elsewhere in the tax code, by, for example, ending targeted tax breaks and deductions. Or you can cut spending.

But Republicans do not appear to have plans to do either. The budget blueprint Trump released earlier this year offered some narrowspending cuts, but offset those cuts with corresponding increases in defense spending. And although the GOP's new tax plan leaves out many details, what's clear is that it would increase the nation's debt, possibly by trillions. It's almost as if Republicans never really cared about the debt, and now that they are in power, are dodging tough choices on the budget because they have no real plan to avoid a debt crisis.