Taxes

Republicans Sink to Deceit in Defense of Tax Plan

No, Mr. Treasury Secretary. Cuts don't pay for themselves.

Better for the wealthy.

Photographer: Andrew Harrer/Bloomberg

Faced with a near disastrous launch of their prized tax reform proposal, Republicans are resorting to Plan B: kill the messenger of bad news and twist their message to the point of deception.

Most analysts have found that, contrary to the claims of the White House and congressional leaders, the Republican "framework" for changing the tax system focuses its benefits more on the wealthy than the middle class, would increase taxes for some working-class families and probably would balloon the federal budget deficit.

Republicans believe that after their humiliating failure to repeal the Affordable Care Act, passing a major tax bill is a political necessity. On the defensive, they are lashing out at reputable analysis and doubling down on dubious claims.

They are especially incensed by an analysis by the Tax Policy Center, a joint project of the Urban Institute and Brookings Institution. It concluded that the proposal overwhelmingly benefits the most affluent taxpayers, gives little to a number of middle class families and in the second decade after enactment would add $2.4 trillion to the deficit. The center, widely respected for honest analysis, "invents numbers," charged Republican Senator Orrin Hatch of Utah.

Supporters correctly note that the framework lacks important specifics on tax rates and limits on deductions, making it impossible to draw precise conclusions about its effects. But the Tax Policy Center made reasonable assumptions based on existing proposals, meaning that its projections are likely to stand up when the details are filled in.

Defenders, like Treasury Secretary Steven Mnuchin, say these projections fail to calculate the massive economic growth that would result from this tax bill, benefiting middle class Americans and generating so much additional revenue that the tax cuts would pay for themselves. They're pushing a "dynamic scoring" model that would put numbers to the hoped-for boost that tax cuts would supposedly give to jobs, wages and investment.

The same claims were made for the 1981 tax cuts, and the cuts of the first few years of this century, and in states like Kansas. There was no surge in tax revenue.

David Wessel, a senior economic-policy fellow at Brookings who has researched dynamic scoring, said that tax changes can affect economic growth and federal revenue but warned: "What we should avoid is using 'dynamic scoring' as a slogan to suggest that tax cuts pay for themselves by goosing the economy so much that growth can offset the revenue lost in a tax cut. They don't." He cited studies by the Congressional Budget Office, the Joint Tax Committee and "the best academic research." 

The risk is that these flawed claims will become a "cover story that lets Congress pass a tax cut that adds to the government's already heavy debt burden," Wessel said.

Although their tax framework clearly tilts to more affluent taxpayers by lowering the top rate, eliminating the estate tax and alternative minimum tax and creating a lower rate for the "pass-through" income generated by many small and medium-sized businesses and wealthy partnerships, Republicans are into denial. Mnuchin has insisted that the tax cuts for the richest Americans "are offset by the elimination of almost every single type of deduction."

Nope. The Republican plan would leave most of the biggest deductions and exemptions in place, including those for home mortgages, charitable contributions and employer-paid health insurance.

The claims about the benefits of eliminating the estate tax are even wilder. President Donald Trump said this provision is designed to protect "millions of small businesses and farmers," an assertion echoed by White House economic adviser Gary Cohn who once said "only morons" pay the estate tax. Moreover, supporters claim that the change wouldn't be a big revenue loser anyway.

The reality: Only estates worth more than $11.9 million are taxed for couples filing jointly. The Congressional Research Service has estimated this threshold excludes all but 159 small businesses or farmers a year -- others say even that number is too high. The revenue loss of eliminating the estate tax is $269 billion in 10 years.

It comes as little surprise that Trump or Mnuchin would play loose with facts. But even conservative policy experts like House Speaker Paul Ryan, reacting to the negative reaction to the tax proposal, are engaging in similar duplicity. 

In an interview Sunday on the CBS program "Face the Nation," Ryan complained that the tax rate paid by U.S. corporations, at almost 40 percent, 1 is the highest in the world and thus puts American companies at a competitive disadvantage. What he omits is the fact that the effective rate paid by U.S. corporations, after all the special write-offs, is in line with the rate paid by major competitors.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
  1. The federal corporate tax rate is 35 percent. Adding state taxes brings the average up to 39.1 percent.

To contact the author of this story:
Albert R. Hunt at ahunt1@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net

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