Massive tax cuts don’t square with professed concerns about public debt
The Washington Post editorial board astutely notes that the budget busting tax plans of the GOP presidential candidates contradict purported concerns about the budget deficit and national debt. Relative to the inadequate revenue levels collected by current tax policies, the tax plans would lose between $180 billion and $900 billion in 2015 alone—or between 1.0 percent and 4.9 percent of GDP. Former Massachusetts Gov. Mitt Romney’s tax plan and former Pennsylvania Sen. Rick Santorum’s tax plans, respectively, represent the low and high end of this range, but former Speaker of the House Newt Gingrich gives Santorum a run for his money with a tax plan that would lose $850 billion, or 4.6 percent of GDP, in 2015.
Under an extension of current policies, the budget deficit is projected to average around 4.3 percent of GDP over the next decade, which is unsustainable in the sense that debt as a share of the economy will continue to rise instead of stabilizing in the second half of the decade. Despite all the fear mongering rhetoric about Washington’s fiscal malfeasance heard from the GOP campaign trail, some of the candidates’ tax plans would more than double the budget deficit over the next decade.
The Post’s editorial board notes that the revenue loss estimates (calculated by the Tax Policy Center) are static scores, meaning that they don’t include growth effects (i.e., dynamic scores). Yet the growth legacy of the last round of deficit-financed, regressive tax cuts—the kind supply-siders love and the kind being floated on the campaign trail—proved a massive flop. This new round of massive tax cuts would either be deficit financed—trading public (di)savings for private savings—and/or financed with deep cuts to public investments and economic security programs, which would drag on growth (among other adverse economic outcomes). Mr. Santorum’s proposed balanced budget amendment, for instance, would force unfeasibly draconian spending cuts across the entire federal budget. His tax plan wouldn’t raise anywhere close to 18 percent of GDP, where he has proposed capping federal spending—current tax policies will raise only 17.6 percent of GDP over the next decade.
The distributional implications of these tax plans are just as concerning as their revenue impact and are amplified by their budgetary impact, which will force spending cuts that don’t show up in TPC’s distributional table. As the Post notes: “It makes no sense to further benefit the wealthiest taxpayers at a time when spending programs for the most vulnerable would be on the chopping block — of necessity, given the candidates’ pledges to cap spending. In their fiscal consequences these cuts would be disastrous; as a matter of fairness, even more so.”
Massive tax cuts don’t square with fiscal responsibility, as aptly demonstrated during the George W. Bush administration. Massive tax cuts targeted toward upper-income households will, however, exacerbate income inequality and undercut the middle class by defunding public investments and economic security programs. But the fiscal debate is not about the budget deficit, the public debt, or the middle class: It is about federal revenue and spending levels as a share of the economy, as epitomized by Grover Norquists’ Taxpayer Protection Pledge. Until conservatives reenter the realm of reality and acknowledge that revenue levels must go up, not down, fiscal responsibility and a sustainable trajectory for debt will remain unattainable.