House GOP Tax Cut Idea Would Increase Debt, Reduce Economic Growth

2018 is a mid-term election year. In most such years, one would normally expect a hectic legislative agenda aimed at building powerful cases for re-election. With an intense battle for control of the House of Representatives looming, one should expect an explosion of legislation.

Now, into early May, the Congressional agenda is largely empty. As campaigns heat up, the temptation for political gimmicks will inevitably rise. One such gimmick, a tiny rescission request that is best viewed through a microscope, is already kicking around. That political stunt likely won’t get very far. More will be needed to gain the attention of the electorate.

A larger impact candidate lurks. That legislation is the “Permanent Tax Cuts for Americans Act” that was introduced by Rep. Rodney Davis (R-IL) in January. This bill would make all the temporary individual tax changes from the December 2017 tax law permanent.

That legislation is an attractive candidate, because it already has 61 co-sponsors. Further, all co-sponsors are Republicans. This creates an unusually large opportunity for differentiation along Party lines. However, despite its coming with a side effect in the form of increased debt, it continues to attract Republican co-sponsors. Even more such co-sponsors can be expected in the coming weeks.

The current co-sponsors include nine members of the House Freedom Caucus who supposedly are the “gold standard” of fiscal prudence. Surely, this must be a mistake. The House Freedom Caucus is severely allergic to deficits and debt. Its members regularly lament the nation’s rising debt burden. Their reaction to this bill would be more violent than any burst of sneezing triggered by allergies to spring tree pollen.

Actually, no. Nine Freedom Caucus Members have, in fact, co-sponsored the bill. They are: Rep. Andy Biggs (R-AZ), Rep. Rod Blum (R-IA), Rep. Ron DeSantis (R-FL), Rep. Jeff Duncan (R-SC), Rep. Matt Gaetz (R-FL), Rep. H. Morgan Griffith (R-VA), Rep. Mark Meadows (R-NC), Rep. Stevan Pearce (R-NM), and Rep. Bill Posey (R-FL). Perhaps the Caucus’ co-chair Rep. Meadows can be excused on account of his suffering from distracted legislating in pursuit of impeaching Deputy Attorney General Rosenstein.

Going back to the bill, what about its deficits? Perhaps they would be small. Perhaps the extra economic growth would justify the change despite those small deficits.

The evidence tells a dramatically different tale. An April 2018 Penn-Wharton Budget Model (PWBM) analysis revealed:

Most of that bill’s tax cuts for individuals (non-businesses) expire at year-end 2025. This brief reports the budgetary and economic effects of indefinitely extending the individual-side tax cuts.

By 2027, we project that debt increases between $573 billion and $736 billion. However, GDP is relatively unchanged, although slightly contracts, because this standard 10-year budget window covers only two years of tax cut extensions.

By 2040, we project that GDP contracts by 0.6 percent to 0.9 percent relative to current law, where the tax cuts for individuals are set to expire. Debt increases between $5.2 trillion and $6.1 trillion.

That’s terrifying. Is Halloween already upon us? No. The calendar reads, “May 2018.”

A second opinion is urgently needed. One is available.

The most recent 10-year budget analysis produced by the Congressional Budget Office (CBO) painted a similar picture in its alternative fiscal scenario. It revealed that an outcome where the individual tax cuts are made permanent (along with a few other changes from its baseline scenario) would result in an annual budget deficit that would exceed $2 trillion (6.0% of GDP) in 2028. That annual deficit would be $503 billion higher than the baseline figure that assumes that the individual tax cuts would expire on schedule.

To sum up, there would be bigger deficits. There would be higher debt. There would be no economic growth benefit.

For the political leaders facing re-election, all of these findings are minor details. At most, these conclusions are footnotes to their ever bold campaign promises and their election-year positioning as fiscally responsible stewards of taxpayer resources. This is because there is but a single mid-term election reality. The only calculus that matters for those up for re-election is whether the bill will yield votes. If it will, they will support it. Everything else–especially fiscal consolidation–can be relegated to campaign promises to be delivered at some indeterminate point in the future, even lifetimes or light years away.

As November 6 approaches, the bill’s champions will urge the electorate to vote for them for countless reasons. However, as the evidence demonstrates, there will be one honest measure by which the public should judge those Representatives. A vote to re-elect them will be a vote for bigger deficits, larger debt, and less economic growth.

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About Don Sutherland 83 Articles
Husband. Dad. American. Believes in America on account of its Constitution, ideals, and people. Character, principle, truth, and empirical evidence matter greatly everywhere, including politics and public policy.