Chuck Grassley is bullying the Congressional Research Service

Chuck Grassley is bullying the Congressional Research Service
© Aaron Schwartz

Despite his sweater vests and carefully cultivated demeanor, Sen. Chuck GrassleyCharles (Chuck) Ernest GrassleyThe Hill's Morning Report - Sponsored by AdvaMed - House panel expected to approve impeachment articles Thursday Horowitz did not find evidence Obama asked for probe of Trump Live coverage: DOJ inspector general testifies on Capitol Hill MORE (R-Iowa) has more in common with President TrumpDonald John TrumpSenate gears up for battle over witnesses in impeachment trial Vulnerable Democrats tout legislative wins, not impeachment Trump appears to set personal record for tweets in a day MORE than is generally appreciated. Grassley is willing to adopt and broadcast a self-evident big lie, as he did when he promoted the “death panels” smear of the Affordable Care Act; he is unwilling to apologize when caught out, as again was the case in the ACA debate; and he is a bully. Unlike Trump, however, Grassley chooses his targets judiciously, by aiming at those who are least able to defend themselves, including congressional staffers.

Grassley’s bullying is on full display in his attack on the reliability of the Congressional Research Service’s recent in-depth analysis of the 2017 tax act’s supply-side economic effects (that is, the impact on business investment and economic growth in particular). (The tax act is usually referred to as the TCJA.) In a June 21 letter, Grassley demanded a meeting with the CRS director to discuss the “tone and substance” of the CRS report.

The CRS report’s authors’ crime was to write a careful 23-page economic analysis, complete with numerous original charts and 49 footnotes referencing other work, designed to offer a preliminary analysis of the effects of the TCJA on the economy, including its supply-side consequences. The supply-side narrative in turn is the ideological pole star of the Republican Party and its principal justification for business tax cuts.

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Consistent with other analyses, the CRS found little if any evidence at this early stage of a strong positive economic impact directly attributable to the TCJA. There is only one full calendar year of post-TCJA data in the books, and for this reason the CRS properly labeled its analysis “preliminary.”

The CRS is a nonpartisan research organization that supports the work of Congress. Here, Congress adopted tax legislation that slashed the corporate tax rate (from 35 percent to 21 percent), further liberalized tax benefits for investment and permitted the “repatriation” of some $2.4 trillion of offshore investments – all at a projected revenue cost to the Treasury Department, according to the CRS’s sister organization the Congressional Budget Office, of roughly $1.9 trillion over the next 10 years (including additional interest on the national debt and taking into account the TCJA’s projected economic growth effects).

What could be more urgent than to ask the hard question: What have we really bought for this nearly $2 trillion in additional national debt?

Adopting the Trumpian “people are saying” rhetorical device, Grassley wrote in his letter that “I have received comments from others who believe that the CRS observations are not entirely nonpartisan in tone or objective.”

It turns out that those “others” include the White House and the Treasury Department, which wrote to Grassley laying out its objections and implicitly egging him on. Treasury’s core argument was that President Trump had such a proven political track record when he took office that businesses already had anticipated the tax benefits of the TCJA in January 2017, so that looking at 2018 figures alone was unfair. Of course, that the TCJA came together in a few weeks in late 2017 with almost no input from the administration should not cloud that story.

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Treasury’s comments relied on growth in aggregates such as GDP, but these tell you nothing about how much tax law changes contributed to those aggregates. The whole purpose of the CRS report was to disaggregate the data to tease out the role of the TCJA (as opposed, for example, to the large fiscal stimulus generated by increased government spending in 2018).

Grassley plainly intends to pressure the CRS to withdraw the report, since its conclusions are anathema to the supply-side credo. There is unfortunate precedent for exactly this strategy.

In 2012 another CRS analyst wrote a report finding that reductions in top tax rates appeared to be uncorrelated with saving, investment and productivity growth over a retrospective period spanning many decades – but that there was a strong correlation between lower top tax rates and increasing income concentration at the top. Republican members of Congress raised a stink and forced CRS management to withdraw the report, over the objections of the leadership of the CRS economics division. Other former staffers have written about the environment of fear in which CRS analysts now operate, thanks to member interventions – and the attendant fear of draconian budget cuts – whenever the CRS produces original analysis that contradicts a member’s vested interest.

To put the CRS’s conclusions into context, let’s focus on the early 2018 jump in business investment. Business investment is volatile and dramatically influenced by larger economic trends (as when an uptick in oil and gas development leads to a surge of investment in the necessary equipment), but it is the very heart of the supply-side  tax story.

CRS’s conclusions that the TCJA did not significantly raise the trendline of business investment are broadly similar to those reached in an important March 2019 working paper by the International Monetary Fund, which concluded that “the overriding factor driving [increased investment in 2018] has been the strength of expected aggregate demand. Investment has, so far, fallen short of predictions based on the postwar relation with tax cuts.”

CRS’s analysis here is echoed by the work of its colleagues at the CBO. In its January 2019 annual Budget and Economic Outlook, the CBO wrote, “In CBO’s projections, growth in business fixed investment slows markedly after 2018— from 6.8 percent in 2018 to 3.2 percent in 2019 and to an average of 1.7 percent per year between 2020 and 2023—as most of the effect of the factors boosting growth in 2018 wanes.” In other words, business investment may (for example) have been deferred from late 2017 into 2018 to take advantage of the new tax rules, although many other factors also affected these aggregates. But the CBO joins CRS in being skeptical that the TCJA has lifted business investment to a whole new level.

More directly, if Sen. Grassley were genuinely interested in the supply-side implications of the TCJA, he could simply have asked his friends at the National Association of Business Economics. He would have learned that in their January 2019 survey of members, 84 percent reported that the TCJA had no effect on their business investment planning.

Finally, Grassley’s letter questions the CRS analysis by suggesting that it is out of step with the work of the CRS’s sister agencies, the CBO and the Staff of the Joint Committee on Taxation. In light of the conclusions on business investment just summarized, that is a truly peculiar claim.

More generally, both the CBO and JCT staff made projections at the time the tax law was enacted, and CBO in particular elaborated on those projections in its April 2018 and January 2019 annual Budget and Economic Outlooks. But the simple fact is that neither CBO nor JCT has undertaken a retrospective empirical analysis of the measurable impact of the TCJA.

Sen. Grassley’s agenda is plain – to follow the 2012 playbook and force CRS to withdraw this report. His motivation is equaly plain, and is identical to that underlying the ugly 2012 incident: the supply-side story remains at the heart of the Republican credo, no matter how many tax cuts may have preceeded this one, and all research that comes to a contrary conclusion must be eliminated.

Edward Kleinbard is a professor of law at the University of Southern California’s Gould School of Law and the author of We Are Better Than This: How Government Should Spend Our Money.