We interrupt our (er, my) wall-to-wall coverage of the Supreme Court to bring you this breaking news bulletin. A centerpiece of the Republican economic agenda is a big, fat fraud.
I'm talking about the tax and budget proposals Mitt Romney, Paul Ryan, and their Republican allies have been promoting. While their plans are not identical, they say they are going to cut taxes dramatically, first by extending all of the Bush tax cuts permanently and then by reducing income and corporate taxes even more.
You don’t have to be a budget expert to spot the problem here: The government would lose a ton of revenue from these tax cuts. The deficit would skyrocket unless lawmakers enacted dramatic cuts in programs on which the poor and middle class depend. Meanwhile, the wealthiest taxpayers in America would get a windfall.
Republicans have been saying they have a way to deal with these consequences. They’d end "tax expenditures" (loopholes and tax breaks designed to encourage certain activities) that, they suggest, mostly benefit the wealthy. The Republicans never specify which loopholes they’d close. Who has time for such details? But, they promise, closing the loopholes would generate enough money to offset the cost of the tax cuts, so that the deficit wouldn't go up even as everybody’s tax burden went down.
Sound too good to be true? It is.
The Senate (Democratic) staff of the Joint Economic Committee crunched the numbers in Ryan's budget proposal and, in a report released this week, found that the promises in it are fundamentally incompatible. Yes, the wealthy benefit from plenty of expenditures. Closing some if not all them would be a good idea. But, at the end of the day, doing so would not produce enough revenue to make up for the cost of lower tax rates. The only way to offset that cost fully would be to end some tax expenditures that also benefit the middle class: the home interest mortgage deduction, for example. But then the middle class would see its tax burden go up, not down.
In other words, Republicans can’t have smaller deficits and lower taxes for the rich and lower taxes for the middle class. They’d have to sacrifice at least one goal. And if you think they’re ready to give up on lower taxes for the rich, then you haven’t been paying close attention for the past few years.
Because the report comes from Democrats, you might be wondering whether it’s trustworthy. It is. The basis for the report's conclusions were calculations from the Tax Policy Center, a joint project of the Brookings Institution and Urban Institute that's as reliable as a government agency when it comes to this sort of analysis. A Tax Policy Center senior fellow (Roberton Williams) vouched for the JEC staff's basic conclusion, though not the specific figures, in an interview with the Washington Post, which was the first to publicize the report. Harold Gleckman, resident fellow at the Urban Institute and editor of the Tax Policy Center's blog, said the same basic thing to me via e-mail:
Unless Republicans go after investment income in a fairly big way, there is almost no way they can cut rates like this without either hammering the middle-class, or sharply increasing the deficit. In this case, the math is tough to ignore.
Of course, it's not like the inconsistency of Republican promises about taxes, spending, and deficits is a sudden revelation. Last month, for example, Richard Kogan and Paul van de Water of the Center on Budget and Policy Priorities did an analysis of Romney's fiscal plans, which are similar to Ryan's. They found that his tax proposal would reduce revenue to about 16.8 percent of gross domestic product, which is absurdly low. Balancing the budget at that level of revenue would require draconian spending cuts well beyond anything even Ryan has proposed.
Ed Kilgore summed it all up nicely:
the big game associated with Republican tax plans is for GOP solons to keep a straight face while asserting they can have big cuts in upper-end income tax rates without exploding the deficit or shifting the tax burden sharply towards middle-income Americans. The magic asterisk in their plans that keeps the mask at least partially in place is the promise that they will eventually identify and eliminate “tax loopholes” that will offset the revenue losses and avoid a big windfall for the rich that will have to be made up by everyone else. It’s “magic” not only because it’s so unspecific (and thus politically painless) but because the really big “loopholes” like the mortgage interest deduction benefit the middle class—and particularly the upper-middle class—a great deal.
The only problem with the JEC report is the broader impression about policy it creates. Democrats are hyping the report as proof that taxes on the middle class would go up if the Republicans get their way. That’s a totally fair statement. But taxes on the middle class really should go up, at least in the long term. A sensible approach to stabilizing government finances would involve both spending reductions and revenue increases. Some of those revenue increases should come from the middle class. Not all of them, obviously, and not right away: The economy needs to strengthen first. But it should happen eventually.
In an ideal world, Democrats would be making this point. But negotiating such a deal will require a serious and honest debate about fiscal priorities. And it’s hard to have that kind of debate when one side is talking nonsense.
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