The Republican presidential candidates have not rallied behind Ben Carson in his clash with the news media, but they should be grateful to him. His misrepresentation of reality on matters concerning his past has distracted attention from his rivals’ misrepresentations of reality on a matter concerning the nation’s future: tax policy.
The GOP was once the party willing to challenge entrenched dogma on taxes, arguing that they have a major influence on the supply of labor and capital, as well as economic growth. That was the rationale behind the reduction in marginal income tax rates under President Ronald Reagan.
It was a bracing insight that many economists now accept to one degree or another. But in practice, it fell short of hopes. A study of Reagan’s 1981 tax cuts concluded that they did not enhance the vigor of the economy or the willingness of taxpayers to work. The study had particular credibility because it was co-authored by Martin Feldstein — who had been Reagan’s chief economic adviser.
But as is often the case in theological disputes, the heresy has morphed into dogma. Modern Republicans no longer assert the benefits of reducing tax rates when they are so high as to cause destructive effects. Modern Republicans think reducing tax rates is the only thing to do in every economic circumstance.
Reagan prescribed tax cuts for the stagnant growth and high inflation of the 1970s. But in 1999, George W. Bush proposed new tax cuts with the economy humming and inflation down. When the Great Recession hit, John McCain ransacked his medicine chest and brought out the same remedy. Now that the unemployment rate has been halved, however, tax cuts are still the only option.
This approach would be entirely commendable if Republicans were equally committed to reducing expenditures in tandem. But their fondness for spending discipline is far milder than their zeal for slashing taxes. Their tax cuts would require far greater budget reductions than any of them would consider politically possible.
The conservative Tax Foundation has priced out the different proposals and found that under conventional assumptions, they would drastically reduce revenue over the next decade — $3.7 trillion in the cases of Jeb Bush and Ted Cruz, $6.1 trillion for Marco Rubio and $12 trillion for Donald Trump. Even under the optimistic “dynamic” estimates, which assume the economy would accelerate, most would still produce revenue losses in the trillions.
Cruz, who relies on a 16 percent value-added tax, seems to think he deserves credit for not sacrificing more revenue. “It is less than a trillion,” he said proudly in Tuesday’s debate, referring to the optimistic projection of the additional debt he would create.
These policies “would lose trillions of dollars at a time we should be talking about how to close the fiscal gap — not explode it,” Maya MacGuineas of the Committee for a Responsible Federal Budget recently wrote in the Wall Street Journal. As it is, she noted, “we are on track to add more than $9 trillion to the debt between now and the end of the next president’s term (assuming an eight-year term)” — more than the increase under the current president.
Ambitious savings on the spending side would be required just to prevent that increase, without any reduction in revenue. None of the contenders is about to take comparable amounts from federal benefit programs.
Some of the candidates fall back on the faith that these tax cuts will pay for themselves by generating so much growth that the Treasury will drown in revenue. Rubio is brazen enough to promise that his plan would “absolutely” yield a budget surplus.
Cruz predicts his would “unleash enormous growth.” Bush is more restrained, noting with derision that “everybody freaks out about the deficit,” while insisting his plan would rev the economy more than party poopers expect.
Not likely. The economy expanded more slowly under Reagan, who cut tax rates, than under Bill Clinton, who raised them. Real GDP growth under Obama, who also boosted rates, has been virtually identical to that under his predecessor, who cut them.
These facts don’t mean raising tax rates stimulates the economy. But they do indicate that tax cuts do not have “enormous” effects. Claiming they do is a ruse to give a false impression of fiscal responsibility.
Democrats no longer care about deficits, which makes them a stark contrast to the GOP. Republicans care a lot about deficits — when Democrats hold the White House.