GOP tax bet worth the gam­ble

The Buffalo News - - OPINION - Washington Post Writ­ers Group

WASHINGTON – The Repub­li­cans’ tax leg­is­la­tion is built on economic pro­jec­tions that are as con­fi­dently as they are cheer­fully made con­cern­ing the leg­is­la­tion’s shap­ing ef­fect on the econ­omy over the next 10 years. This claim to pre­science must amaze alumni of Bear Stearns and Lehman Broth­ers, which were 85 and 158 years old, re­spec­tively, when they ex­pired less than 10 years ago in the unan­tic­i­pated Great Re­ces­sion.

The pre­dic­tions of GDP and rev­enue growth as­sume, among many other things, con­tin­u­a­tion of the cur­rent ex­pan­sion. It be­gan in June 2009 and has been no­table for its ane­mia rel­a­tive to other post-1945 ex­pan­sions: Its average an­nual growth rate has been 2 per­cent; theirs, 4.3 per­cent. But it is 102 months old; the average since af­ter World War II is 58 months. A re­ces­sion is al­most a cer­tainty dur­ing the 10-year win­dow for which the tax bill has been tai­lored.

What the leg­is­la­tion’s drafters an­tic­i­pate, in­deed pro­claim, is that Congress will not al­low to hap­pen what the leg­is­la­tion says, with a wink, will hap­pen. So, this might mark the his­toric mo­ment when Washington de­cided that it no longer will bother to blush. The leg­is­la­tion says the tax re­duc­tions for in­di­vid­u­als will ex­pire by 2025. Trea­sury Sec­re­tary Steven Mnuchin, how­ever, says “we have ev­ery ex­pec­ta­tion that down the road Congress will ex­tend them.” We have been down this road be­fore: For the same rea­son, some Ge­orge W. Bush tax cuts of 2001 were sched­uled to ex­pire at the end of 2010; 82 per­cent of them (mea­sured by rev­enue) did not.

The Democrats’ de­nun­ci­a­tion of the Repub­li­cans’ tax cuts be­cause they es­pe­cially ben­e­fit the wealthy is a re­cy­clable de­nun­ci­a­tion of any sig­nif­i­cant tax cut. The top 1 per­cent of earn­ers sup­ply 39 per­cent of in­come tax rev­enues, the top 10 per­cent sup­ply 70 per­cent, the bot­tom 50 per­cent sup­ply 3 per­cent, 60 per­cent of house­holds pay ei­ther no in­come taxes (45 per­cent) or less than 5 per­cent of their in­come, and 62 per­cent of Amer­i­cans pay more in pay­roll taxes than in in­come taxes. So, any tax cut sig­nif­i­cant to macroe­co­nomic pol­icy – any that sub­stan­tially change busi­nesses’ and in­di­vid­u­als’ be­hav­iors – must be pri­mar­ily a cut for the af­flu­ent.

Democrats pre­tend to worry that Repub­li­cans are ex­e­cut­ing a di­a­bol­i­cal dou­ble play, us­ing tax cuts to pla­cate donors, then cit­ing the cuts’ en­large­ment of the na­tional debt as an ex­cuse to cut en­ti­tle­ments. Surely Democrats know that Repub­li­cans are not in­sub­or­di­nate to their pres­i­dent, who has vowed to op­pose any sig­nif­i­cant (i.e., touch­ing So­cial Se­cu­rity or Medi­care) en­ti­tle­ment re­forms. In 2002, when Dick Cheney – a strict con­struc­tion­ist, but not of economic data – said “Rea­gan proved deficits don’t mat­ter,” the pub­licly held na­tional debt was 33 per­cent the size of GDP; to­day it is 75 per­cent. At some point, the debt’s size mat­ters, and we seem de­ter­mined to learn where that point is.

This tax leg­is­la­tion, an amal­gam of earnest hop­ing and trans­par­ent make-believe, is a se­ri­ous lunge for sus­tained 3 per­cent growth. With­out this, the econ­omy, and hence the en­ti­tle­ment state, will buckle be­neath the strain of 10,000 of the el­derly each day be­com­ing el­i­gi­ble for So­cial Se­cu­rity and Medi­care. The Repub­li­cans pur­port to know how changed tax in­cen­tives will af­fect cor­po­ra­tions’ and in­di­vid­u­als’ de­ci­sions, and how those de­ci­sions will ra­di­ate through the econ­omy. Repub­li­cans do not know – no­body, in­clud­ing the Repub­li­cans’ equally over­con­fi­dent crit­ics, does -- but they might be right, and their wa­ger is worth try­ing.

Eco­nomics is a sci­ence of in­cen­tives, and like all sciences it is never “set­tled.” Both sides, with their thump­ing pre­dic­tions, have given hostages to the fu­ture, which will deal harshly with some. Per­haps most. Pos­si­bly all of them.

Ge­orge Will

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