The Republican Way: Cut Taxes, Expand Deficits
Have the debates told us anything about what Republicans would actually do about taxes and the federal budget if they took over the White House?
For all the popular cynicism about the promises politicians make to get elected, presidents try to do what they said they would do. But just because a president wants something doesn’t mean he or she will get it. This will be true even if Republicans keep their majorities in the House (virtually certain if they win the White House) and the Senate (less certain, though still likely in a good Republican year).
If there’s one safe bet in a Republican presidency, it's that substantial tax cuts and large budget deficits will follow.
Nevertheless, don’t expect any of the ambitious plans for an entirely new system to be enacted. Major changes are difficult. Tax reform at its best is a tough political sell once the politicians start discussing details. Any change that removes current tax preferences -- deductions, credits and exemptions, for example -- creates losers, even if more people are winners through lower rates overall. In addition, any general gains in economic growth projected to happen from a more efficient tax system won't be visible at all to people, at least not as a consequence of tax law.
So while Ben Carson made a reasonable and perhaps even courageous argument in the Fox Business Network debate for why it's OK to eliminate deductions for mortgage interest and charitable contributions in the general interest of a fairer tax system, it’s unlikely that many Republicans in Congress will take up the cause.
Instead, expect something rather like what Marco Rubio is proposing: Big cuts for the rich, more modest cuts for the middle class, and cuts in the form of tax credits even for the poor. In other words, for All of the Above (or almost all of them).
For starters, Republicans really believe in trickle down (that is, “job creators” will do their thing once they have tax incentives to do so). Then the GOP candidates offer tax cuts at the bottom so that they can defend themselves against accusations that they’re mean. And finally, cuts for the middle are key because, after all, that’s where most voters are.
Yes, this leaves plenty of room for negotiation on the details, and those trade-offs are hard to predict with any precision.
But what is not hard to predict is the result: larger federal budget deficits. Most of the Republicans have no plans for cutting spending -- just vague generalities. That’s no surprise: Most specific federal programs are quite popular, and after several years of budget cuts there aren’t a lot of easy places to trim. As with the tax system, the bias in favor of the status quo is strong. That's why Republicans focus on fighting waste, fraud and abuse in government rather than on identifying exactly how they would change the fundamentals.
Seriously slashing the U.S. budget means taking on Medicare, Social Security or both -- tricky for a party which draws support from older voters. Even if some significant changes to these programs were to pass and take effect, such as what Ted Cruz suggests for Social Security or what House Speaker Paul Ryan has proposed for Medicare, they mostly push spending cuts off to the future.
Remember, we have seen all this before. Big tax cuts combined with smaller reductions in government spending produced huge budget deficits at the beginning of Ronald Reagan’s presidency. And so did big tax cuts at the beginning of George W. Bush’s presidency. The odds are overwhelming that we will see this again under a new Republican president.
Carly Fiorina is still claiming she would write a three-page tax code, but no one believes that's remotely possible, and she has not supplied any evidence by releasing a draft -- surely not difficult to do if such a thing was feasible.
There were huge deficits early in Barack Obama’s presidency as well, but those were partly an inheritance from the Bush years; partly a consequence of automatic budget changes produced by the recession; and partly a result of temporary tax cuts and spending increases in the 2009 stimulus. In other words, Obama’s policy involved increasing the deficit in the short term, but not for the long term, as George W. Bush's did.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Jonathan Bernstein at firstname.lastname@example.org
To contact the editor responsible for this story:
Katy Roberts at email@example.com