President Trump will unveil Wednesday a proposal to slash the corporate tax rate from 35 to 15 percent—a change that would balloon the federal deficit by an estimated $2 trillion dollars over a decade. The plan will reportedly include additional cuts to the income tax rate paid by high earners and a tax credit for child care that would mostly benefit the wealthy, at further cost to the federal budget.
While some Republican lawmakers cheerfully echoed to TPM the White House line that the tax cuts will “pay for themselves” by spurring massive economic growth, both official government analyses and conservative economists are much more skeptical.
“There’s no pure tax cut that pays for itself,” Alan Cole, an economist at the right-leaning Tax Foundation, told the Associated Press.
Len Burman, the co-founder of the Tax Policy Center think tank, characterized it as “wishful thinking.” Bruce Bartlett, an economist who advised the Reagan and George W. Bush administrations, has likened these calculations to “using smoke and mirrors to institutionalize Republican ideology into the budget process.” George Callas, who serves as senior tax counsel to House Speaker Paul Ryan (R-WI), dismissed the framework as a “magic unicorn” whose main impact would be akin to “dropping cash out of helicopters on corporate headquarters.”
Democrats: sidelined and skeptical
If Trump’s plan is ultimately found to explode the federal deficit over the long term, he will not be able to pass it under the rules of reconciliation, which requires only a simple majority in the Senate and prevents the possibility of a Democratic filibuster. This means Republicans may have to working with Democrats to get a tax reform to the president’s desk.
But Democrats, fresh off a round of town hall scolding from their riled-up progressive base, are in no mood to lend Republicans and President Trump a hand, and in no mood to vote for a bill that would help the wealthy and corporations. This is especially true now that Trump has rolled out a budget gutting everything Democrats hold dear, from diplomats to public media to housing to the EPA.
“I want a tax reform proposal that works for working families, not just for the people who can hire a lot of accountants and lawyers,” Sen. Ron Wyden (D-OR), who sits on the Senate’s Taxation and Budget committees, told TPM. “Today, if you’re a cop or a nurse, your taxes are compulsory. They come out of your paycheck once or twice a month. No Cayman Islands thing for you. But if you’re someone who can afford lots of lawyers and accountants, you can pretty much decide what you’re going to pay, when you’re going to pay, and maybe if you’re going to pay any at all.”
Wyden added in a gaggle with reporters that President Trump’s business entanglements and lack of transparency make him even less eager to support such a plan. “If he released a tax proposal with a big break for big business, and he hasn’t released his returns, Americans are going to say, ‘Who does this proposal benefit? Does it benefit us or does it benefit him?'” he said.
Sen. Debbie Stabenow (D-MI), though she didn’t rule out supporting some form of a corporate tax cut, said she was “very skeptical” of the president’s proposal of a 15 percent rate.
“I’ve seen no plan in the past that can get to that level without seriously adding to the deficit or undermining those things important to working people,” she said Tuesday.
Republicans, despite claiming before recess that they were hoping to act in a bipartisan manner on tax reform, are not eager to work with Democrats either.
Senate Majority Leader Mitch McConnell (R-KY) told reporters Tuesday that it’s “pretty clear” the bill will have to be done through reconciliation because “today’s Democratic Party is different than the Democratic Party in the ’80s, which was actually interested in pro-growth tax reform.”
Dynamic scoring and other fuzzy math
If they want to avoid the reaching across the aisle, Republicans can get around the reconciliation rules by making the tax cuts temporary—as George W. Bush did—giving a future president the unpleasant task of choosing between extending the cut or overseeing a massive take hike when it expires.
The other option, popular among some Hill Republicans, is to evaluate the bill’s revenue impact using dynamic scoring—a budgetary gimmick that assumes that tax cuts will generate robust economic growth.
“The key is whether it’s what they call ‘scored dynamically,'” Sen. Marco Rubio (R-FL) told reporters Tuesday. “What are the estimates in terms of economic growth? What does it do in terms of making America competitive?”
The non-partisan Congressional Budget Office frowns on this practice, as do many economists and lawmakers, who liken it to cooking the books to produce a more favorable projection of a bill’s impact.
House Speaker Paul Ryan (R-WI), though he for years questioned the wisdom of deficit-growing tax cuts and pushed his own plan that would raise revenue by taxing imports, is an enthusiastic fan of dynamic scoring, and once attempted to force the CBO to use the controversial method.
Ryan, it should be noted, though he positions himself as a deficit hawk, also voted for the Bush tax cuts in the early aughts. Those tax cuts exploded the federal deficit and, some argue, continue to contribute to its expansion nearly 20 years later.
But will the same lawmakers who insisted just a few months ago that any tax reform plan be revenue neutral—and who have demanded that even spending on hurricane relief aid be offset by budget cuts so as not to grow the deficit—now fall in line behind Trump?
The answer, for some, is yes.
“I do believe tax cuts generate additional revenue that will help us with all our problems,” Sen. Lindsay Graham (R-SC) told reporters on Monday, echoing the Treasury secretary’s dubious claim that the corporate cuts will “pay for themselves over time.”
“But it’s got to be reasonable,” Graham continued. “I’m not going to support a 10 percent corporate tax rate.” Asked by TPM if a 15 percent rate was acceptable, Graham said he would have to think about it and read the fine print in the President’s proposal.
White House officials say a detailed tax plan will not be released until June.
Despite assurances of dynamic scoring and record growth, some Republicans are balking at the depth of the proposed tax cuts. Having railed for years against the ever-growing federal deficit, they are mindful of supporting a plan that would push the government far deeper into the red.
Democrats have been eager to point out this hypocrisy.
“Consistency seems to be in short supply on the other side,” Sen. Richard Blumenthal (D-CT) quipped to TPM.
Blumenthal predicted, as have former lawmakers, staffers, and tax experts, that Republicans will find it difficult—potentially impossible—to pass any tax reform this year as they have promised. “I have a feeling this proposal will meet the same fate as their Trumpcare plan: imploding in divisions among themselves.”