Is the new GOP tax cut plan going to pass by Thanksgiving? Paul Ryan certainly seems to think so (or at least he’s really talented at faking optimism). We expect the Democrats to oppose it, but there’s already significant pushback from the Republican ranks and not all of it is coming from the most “moderate” ranks either.
This Hill is reporting that Oklahoma Senator James Lankford is already a no vote and it’s not for any of the reasons that Chuck Schumer is citing. He simply doesn’t want to drive up the debt further and isn’t buying the magical looking estimates of how much revenue will accrue from faster growth in national productivity.
“I am a no. I want to make sure we have reasonable assumptions in the process for growth estimates,” Lankford told NBC’s Chuck Todd on “Meet the Press.”
“I’m actually not comfortable with increasing the debt. This is something that’s been a behind-the-scenes conversation for a long time. It’s one thing to be able to cut taxes, it’s another thing to be able to say, ‘how are we going to deal with our debt and deficit?’” he continued.
Lankford’s comments come after House Republicans introduced their tax-reform plan last week. It is expected to pass through the lower chamber, but face more opposition in the upper chamber.
I’m not here to just rain on everyone’s parade, but we need to slow down and listen to what Lankford is saying as well as learn from recent history. This plan isn’t really “tax reform” in any meaningful way, so I wasn’t wild about it to begin with. We really need to restructure how we think about and collect taxes, which many of our elected officials promised to work on during the last election cycle (like they do every time). But since we may as well accept the fact that true reform isn’t coming, tax cuts are about the best we could hope for so I’m ready to get onboard.
But we also don’t want to set ourselves up for failure right out of the gate. Let’s keep in mind what happened in Kansas after Sam Brownback got his massive tax cut package pushed through in 2010. No matter how much you may admire his intentions, it was an unmitigated disaster. Brownback may have won another term in office, but his own legislature has now rolled back most of the cuts.
Why? Because the good idea of tax cuts needed to be paired with other actions to keep the state solvent. There were two chief areas where the plan fell flat on its face and we are in danger of doing the same thing on a national level if we’re not careful. Back in July, Sally Persons at the Washington Times explained one element of the collapse. (Emphasis added)
Whether the Kansas experiment is a referendum on conservative, low-tax policies is an open question. Obsession with tax rates often obscures other factors in businesses’ decision-making, such as the availability of a good workforce, quality of life for employees, and proximity to airports and other infrastructure, analysts say.
“You can’t just have the tax issue in isolation,” said Richard C. Auxier, a tax policy researcher at the Urban Institute. “There’s no clear link between tax cuts and growth.”
It’s true. You can certainly expect some growth from cutting taxes all around. People with more money in their pockets spend more and businesses with a better cash flow are able to hire more workers. But there’s no assurance of either in reality. Consumers are now tending to save a lot more than they used to. That’s a great idea and represents sound family retirement planning, but it can also bleed off some of the expected consumer activity spike. And employers who are already meeting all their goals with their current labor force may not feel any incentive to expand, putting the extra money into their bottom line instead.
There’s a bigger issue at hand with the Kansas plan, however, and it was explained nicely by Ben Haller at Reason back in June.
What went wrong? First, the legislature failed to eliminate politically popular exemptions and deductions, making made the initial revenue drop more severe than the governor planned. The legislature and the governor could have reduced government spending to offset the decrease in revenue, but they also failed on that front. Government spending per capita remained relatively stable in the years following the recession to the present, despite the constant fiscal crises. In fact, state expenditure reports from the National Association of State Budget Officers show that total state expenditures in Kansas increased every year except 2013, where expenditures decreased a modest 3 percent from 2012.
We’re seeing some of the same mistakes looming on the horizon with the GOP tax plan. Slashing taxes is a wonderful idea, but you simply can’t get away with doing that unless you cut spending as well. The Democrats have already picked the magical money tree in the Rose Garden clean. This is just simple math we’re talking about here.
That’s the hard part of fiscal conservatism. You have to convince the public that sometimes they need to take the medicine without having a massive spoonful of sugar to wash it down. If you don’t eliminate a lot of the popular deductions and cut spending across the board accordingly, you blow a massive hole in the budget. And you can’t simply pretend that the expected revenue growth from trickle-down theory is going to cover the entire bill and then just act surprised when it doesn’t. All we’ll wind up doing is compounding our debt and deficit problems rather than correcting them.
Should we have significant tax cuts? Yes. But if we’re serious about it, the GOP needs to make the case to the public that spending cuts will need to go hand in hand with that, at least until we get a handle on how much growth those tax cuts are actually producing. Kansas already failed this test. Let’s not replicate that result at the federal level.