Domestic Taxes

Republicans embrace debt-busting tax plans

Top Republicans, such as Mitt Romney, used to maintain that a comprehensive rewrite of the tax code shouldn’t add to the federal debt.

Not anymore.

{mosads}Former Florida Gov. Jeb Bush, a 2016 GOP contender often compared to Romney, released a tax plan last week that would cost anywhere between $1.2 trillion and $3.7 trillion over a decade. Conservative analysts praised the plan, even as some said that others in the Republican field had crafted more exciting proposals. 

And while campaign tax plans are often seen more as political posturing than serious policy proposals, GOP lawmakers insist that negotiations ought to start with the premise that tax reform should end up being a tax cut.

Senate Finance Committee Chairman Orrin Hatch (R-Utah), a central player in any tax reform deal, said Bush’s plan was giving Republicans reason “to be exhilarated again.”

“When we win the presidency and enough seats, we can do that,” Hatch, who has endorsed Bush for president, told reporters.

As Hatch noted, Republicans would likely need to run the table in 2016 to enact the sort of tax proposal championed by Bush or other conservative policies the GOP wants after eight years of President Obama. Top officials in the two parties are currently discussing a smaller deal that would revamp international tax rules and pay for highway projects.

But the proposal marks a pronounced shift from the last presidential campaign, when Romney insisted his tax plan wouldn’t add to the deficit or shift the tax burden to the middle class. (Outside analysts, such as the Tax Policy Center, found otherwise.)

Just over 18 months ago, then-House Ways and Means Chairman Dave Camp (R-Mich.) also rolled out a plan that didn’t increase the federal deficit.

Democrats have piled on GOP tax-cutting proposals for decades and have already started to brand the plans from presidential candidates as fiscally irresponsible and handouts
to the rich.

Still, GOP officials both on and off Capitol Hill say it’s time for Republicans to follow their tax-cutting predecessors, including Ronald Reagan and George W. Bush. They’re aided by the fact that the yearly deficit has dropped from well over $1 trillion early in Obama’s presidency to $426 billion this year.

Rep. Pat Tiberi (R-Ohio), a senior House tax writer, noted that Republicans didn’t used to “go around saying you have to raise taxes on somebody else to cut taxes for another set of people.”

“We’re going back to our roots,” added Tiberi, a close ally of Speaker John Boehner (R-Ohio).

On its own, Bush’s tax plan would add in the neighborhood of $3.5 trillion to the federal debt when scored using traditional methods, according to two separate estimates. Bush’s campaign says that deficits would fall under his watch, with a tax plan, regulatory reforms and spending cuts that will help spur 4 percent annual economic growth.

The two estimates of Bush’s plan — one from the free-market Tax Foundation and the other from four prominent conservative economists — found that the plan would lose between $1.2 trillion and $1.6 trillion over a decade when accounting for economic growth.

Elsewhere in the GOP presidential field, Sen. Rand Paul (Ky.) has proposed the sort of flat tax that has long appealed to conservative supply-siders, while Sen. Marco Rubio (Fla.) has a plan aimed more at helping families but that also eliminates capital gains taxes. Analysts have found that all three plans would give bigger tax cuts to the wealthy than to the middle and lower class.

Paul’s plan would cost around $3 trillion over a decade using traditional scoring methods, the Tax Foundation found, while Rubio’s adds up to more than $4 trillion. Both plans would lose much less — Paul’s $960 billion and Rubio’s $1.7 trillion —under more “dynamic” scores that some analysts consider far too generous.

The plans could also fall flat with voters, given the success Donald Trump has had with a more populist message this year and the issues Romney faced as the GOP nominee
in 2012.

Some conservative analysts contend that Republicans are opening themselves up for attacks by cutting taxes so aggressively when polls still show that voters favor tax increases on
the rich.

But Douglas Holtz-Eakin, a former director of the Congressional Budget Office, said GOP contenders would be “quite cognizant of the fact that they’re going to be dinged by Democrats and not looking good on distributional grounds.”

“I’m guessing they’re thinking: ‘Fine. You’ve got stuff that’s failed for seven years now,’ ” added Holtz-Eakin, now the head of the conservative American Action Forum. “Republicans who are serious about policy are taking a longer view, and that’s that the best way to help the people who are really pissed off is to grow
the economy.”

Tiberi said House Ways and Means Chairman Paul Ryan (R-Wis.) also had encouraged Republicans to take a fresh look at their tax ideas after the problems Camp faced with his plan last year.

Camp’s proposal got low marks from many Republicans, who questioned the framework’s 35 percent top individual tax rate and proposals that would tax the largest banks and force businesses to write off expenses over a longer period. Democrats praised Camp for producing a plan but not his actual policy prescriptions.

Camp, Tiberi said, “had a belief system that he convinced us all to
buy into.”

“At the end of the day, it didn’t work, he got no credit for it and I think Chairman Ryan has done a good job reminding us that this is what we believe as Republicans,” Tiberi said.

Sage Eastman, a former top aide to Camp, said the former chairman was partly trying to show lawmakers what a revenue-neutral tax plan would look like under traditional scoring

Republicans are less likely to say now that tax cuts pay for themselves but still believe that overhauling the tax code can spark economic growth. Camp’s plan also found offsets for tax breaks that are routinely restored but score as revenue losers.

“Camp was implicitly and explicitly questioning how do you define revenue neutrality,” said Eastman, now a lobbyist at Mehlman Castagnetti Rosen & Thomas.

He added that Republicans could be bolder on tax cuts now because of falling deficits but would still be vigilant in other areas to keep the debt from exploding.

“We’re a party built on lower taxes for economic growth,” Eastman said. “I think there’s a danger for Republicans who don’t embrace that and double down on it.”

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