BEYOND THE NUMBERS
Unpaid-for Tax Cuts for Wealthy Even Less Defensible Now Than in Bush Era
Senate Budget Committee Republicans drafting a 2018 budget resolution are reportedly considering letting the Senate use the fast-track “reconciliation” process to pass a tax bill that loses revenue and increases deficits. That would mark a major break with promises from House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, and other key Republicans that tax reform will be revenue neutral, meaning it would finance any tax cuts by raising other revenue, such as by scaling back tax breaks. And it would mark a disturbing turn towards the model of President Bush’s tax cuts of 2001 and 2003.
Ideally, any major tax bill should raise revenue in order to finance existing federal commitments and meet critical national needs both now and in the future. It certainly shouldn’t lose revenue, as the Bush tax cuts did.
A new package of unfinanced tax cuts skewed to the rich would be even less defensible now than in the Bush era, because one of the proponents’ main justifications for the 2001 Bush tax cuts — projected budget surpluses — has disappeared. In 2001, the federal government was running a surplus, the federal debt was relatively low and shrinking, and large surpluses were forecast for the coming decade. Many policymakers — including President Bush and Federal Reserve Chair Alan Greenspan — cited projected surpluses and falling debt as a reason to cut taxes.
But today’s fiscal outlook is the reverse: deficits are projected over the coming decade (and beyond), with the debt projected to rise from today’s 77 percent of gross domestic product (GDP) to 91 percent in 2027 (see graph). The reasons include rising health care and other costs associated with the retirement of baby boomers. But the Bush tax cuts themselves are also a factor: in 2013 CBPP estimated that the Bush tax cuts (including those that policymakers had made permanent) meant $5.6 trillion more in deficits from 2001 to 2018, after taking into account the associated increase in interest costs. This means that the Bush tax cuts will be responsible for roughly one-third of the federal debt owed by 2018.
Another unfinanced tax cut would add to an already challenging long-term fiscal outlook, increasing budget pressures that would put at risk programs that help families afford basic needs and invest in communities. Indeed, Republican lawmakers have repeatedly cited current debt projections to justify cutting critical programs.
The House Budget Committee’s 2018 budget, for example, cites the debt as “an impediment to greater prosperity and a threat to the security of future generations” to justify its deep spending cuts, which include $2.9 trillion in cuts over ten years to programs for low- and moderate-income Americans. The budget calls for cutting $150 billion from SNAP (formerly food stamps) and $75 billion from Pell Grants for students from low- and moderate-income families, for example, and it not only would repeal the Affordable Care Act but cut Medicaid by another $110 billion.
Policymakers should resist efforts to craft a budget resolution that opens the door to revenue-losing tax cuts. At the very least, they should stick to their promise that any tax plan would be revenue neutral.