Republican politicians are having a very difficult time defending their House and Senate tax plans as they try to rush something to Donald Trump’s desk before the end of the year. It is no easy task to convince people to support a bill that is so sloppy and unfair, but Republicans are trying mightily to make it happen.
Take, for example, Republicans’ attempts to justify their proposed cancellation of many popular middle-class tax breaks. One House back-bencher first tried to say that some middle-class people should pay more for their children’s higher education because Congress has done such a poor job of designing and popularizing certain tax breaks:
“Do we want a complicated tax code that gives these small, sometimes invisible benefits to certain Americans—that, by the way, a lot of Americans don’t take advantage of because they don’t know they exist?”
Having blamed the victims, the good ideological soldier then reverted to his party’s talking points: “Or do we want a tax code that treats everyone more fairly, that provides growth opportunities for more people, that gives every American the opportunity to rise, to thrive, to flourish? That’s the debate we’re having here.”
Yes, that is exactly the debate that the country is having, and the Republicans are on the losing side of every aspect of it. Their bill does not treat everyone more fairly, would not increase growth, and would reduce regular Americans’ ability to rise, thrive, and flourish. But boy, it sure would be good for the people who are already at the top!
As bad as the Republicans in Congress have been, it is worth taking some time here to—how shall I say it?—appreciate the uniquely toxic role that the Republicans’ house-trained economists have been playing in this debate.
It turns out that Republicans, rather than basing their tax policies on evidence and logic, first decided what they wanted to pass and only then set their economists to work backfilling the justification to the best of their abilities. And the result is even worse than one might have expected.
The Right-Wing Universe of Economists: Ideology on Top of Ideology
Despite its pretenses to being a science, economics is very much about politics, not just in its bottom-line implications but every step of the way. Even so, there are better and worse ways to pursue economic analysis, and the nakedly partisan approach favored by Republicans simply takes as a given that the government is always and everywhere the enemy of a healthy economy. This allows them to “conclude” that government is always bad, tax cuts are always good, and so on.
More than starting by assuming their conclusions, however, Republican economists are also willing to ignore even the most overwhelming consensus when it suits their purposes. And I am not merely talking about staff economists on congressional committees or in heavily funded right-wing think tanks. There is a group of usual suspects from top universities that advises Republican presidential candidates every four years.
That group has already had its moments of infamy, such as their 2012 effort to claim that “six studies” proved that Mitt Romney’s economic policies added up, even though they were counting things like an op-ed that discussed their own assertions as a separate “study.” These economists sometimes even go on record as saying that evidence does not shake their faith in what they know to be true.
Still, there have traditionally been some limits on what a right-wing economist might do. In the era of Trump, however, those limits (as with so much else) have been abandoned. A colleague recently forwarded to me an email signed by two of those high-profile economists who had served in federal budgetary positions and who have thrown off all sense of restraint or respect for evidence by circulating an “open letter” for other right-leaning economists to sign.
The authors of the letter, who announce that they are “working to highlight the positive economic benefits that the Tax Cuts and Jobs Act will bring to the United States,” styled their admission of rank partisanship as an open letter to “Senators and Representatives,” singing the praises of the Republicans’ tax cuts.
The Misuse and Abuse of Words and Numbers
Because it is not (yet) available online, I will quote liberally (pun intended) from the letter here. It is a veritable study in how far off the rails Republican economists have gone. They waste no time in getting to their (bizarre) point:
“[W]hen it comes to the tax reform package aimed at fixing our broken system, the undersigned have but one shared perspective: Economic growth will explode if the Tax Cuts and Jobs Act passes, leading to more jobs, higher wages, and a better standard of living for the American people. If, however, the bill fails, the United States risks an economic winter rivaling the worst we’ve seen.”
Never mind that independent analyses (to say nothing of liberal economists’ studies) have concluded that, for example, neither the House nor the Senate Republican tax bills “would materially increase long-run economic growth.” Who cares what the evidence says? No, growth will “explode” if the cuts are passed, whereas (in a positively Trumpian turn of phrase) we will shiver through a horrible future, the likes of which we have never seen, thus apparently rivaling the Great Depression, the economic panics of the nineteenth century, or maybe even (who knows?!) the Middle Ages. Winter is coming!
We are told that “America is not economically competitive,” which means that we are also supposed to ignore the high profits of US corporations and that we are the third largest exporter in the world. Why are we supposedly so weak? Because “our chart-topping corporate tax rate is the highest in the industrialized world.” And why does that matter? Here is where the rhetoric becomes especially slippery:
“Our colleagues from across the ideological spectrum—regardless of whether they ultimately support or oppose the current plan—recognize the record-setting rate at which the United States taxes job-creating businesses is, either significantly or entirely, a burden borne by the workers they employ. The question isn’t whether American workers are hurt by our country’s corporate tax rate—it’s how badly. As such, the question isn’t whether workers will be helped by a corporate tax rate reduction—it’s how much.”
I have to admit that I am impressed by the way in which the writers of this letter couched one kernel of half-truth inside a husk of right-wing talking points and buzzwords. According to them, our tax rates are “record-setting” impositions on “job-creating businesses” that “burden” regular folks, meaning that cutting corporate taxes must necessarily be good. That has to be some kind of record for the amount of empty political rhetoric packed into a single sentence. Bravo!
The problem is that the only thing that economists from across the political spectrum would agree upon is that some studies have concluded that the corporate tax is partly paid by both shareholders and workers. However, nonpartisan analysis shows that “there remains little, if any, consensus about who bears the burden of the corporate tax.”
Moreover, to the extent that there is any agreement at all about workers paying even a part of the corporate tax, the claim that the tax is paid “significantly or entirely” by workers is simply not a consensus view.
In addition, the existing studies tell us (at best) the average amount of total corporate taxes that are currently borne by workers. That tells us nothing about the percentage of the proposed tax cut that would trickle down to workers. Businesses could simply give it all to shareholders or use it to buy back shares of their own stocks.
When corporate CEOs have been asked what they would do with the money that Republicans plan to give them, “give our workers raises” has not been their answer. Why would it be, given that the Trump Administration and Republicans are frantically doing everything possible to make it easier for corporations to pay their workers as little as they can?
But the most jaw-droppingly dishonest move of the letter, in support of the absurd claim that the Republicans tax plan “will ignite our economy with levels of growth not seen in generations,” is the assertion that the tax cuts would,
“per the Council of Economic Advisers, help produce a GDP boost ‘by between 3 and 5 percent.’ As the debate delves into deficit implications, it is critical to consider that $1 trillion in new revenue for the federal government can be generated by four-tenths of a percentage in GDP growth.”
The President’s Council of Economic Advisors (CEA), not surprisingly, is now run by one of the most shamelessly partisan Republican economists out there. But setting that inconvenient fact aside, the study to which the letter refers has, indeed, been hyped as increasing GDP by three to five percent.
Even if one believed those numbers (and one most definitely should not), however, the sleight of hand in that block quote involves juxtaposing a three to five percent increase “in GDP” with a reference to “GDP growth.” The difference between GDP itself and the rate at which it grows is crucial.
The (highly suspect) CEA study merely claims that GDP will increase in total by three to five percent above what it would otherwise be, but even the study’s authors admit that this would happen over a number of years. How long? Perhaps “as soon as 3 to 5 years,” but “it could take at least double that time.”
At least double.
This means that the GDP would not grow by three to five percent more per year. Growing by, say, a total of four percent over ten years would necessarily mean that the annual growth rate was slightly less (because of compounding) than 0.4 percent above what it would have been.
Moreover, that is not a sustainable increase. Once we added the total three to five percent in additional GDP, we would be done, and growth would return to its normal rate. That would not be nothing, but it is nowhere near as big as it might seem. And again, the entire exercise is based on cherry-picked models that reach Republicans’ preferred outcomes.
How Do You Turn Billions Into Trillions? Watch Me Pull a Rabbit Out of My Hat!
But it is even worse than all of that. Parroting the usual Laffer Curve line about supposedly “[s]ophisticated economic models” that prove that the tax cuts pay for themselves, the letter relies on the same sleight of hand that I described above to make an even more outrageous claim.
Recall that the letter tells its audience of senators and representatives that it is “critical to consider that $1 trillion in new revenue for the federal government can be generated by four-tenths of a percentage in GDP growth.” If we were to experience the promised five percent of increased GDP, would that mean that we could divide five percent by 0.4 percent and conclude that we will get $12.5 trillion in new revenue? Of course not.
GDP in the US is currently a bit less than $19 trillion, but let us round that up to twenty trillion. Four-tenths of one percent of twenty trillion is $80 billion, so how can we get “$1 trillion in new revenue for the federal government” from this much growth?
The answer is that the authors of the CEA study can only have used what is called an infinite-horizon model to generate their estimate that (adjusted for time) all future revenues combined will equal one trillion, but only if the GDP growth rate is 0.4 percent higher forever.
But by their own admission, the increase in GDP could be large-ish for a few years or much smaller for a few more years, but the extra growth is in any case temporary. In neither case is it close to creating additional revenues even of the same order of magnitude as the letter insinuates.
The authors of this letter are not stupid men. They are not likely to be confused by levels of GDP versus rates of growth. It is even less likely that they accidentally juxtaposed the three to five percent increase in GDP’s level with the 0.4 percent of GDP growth. This is the very definition of intellectual dishonesty.
In the end, however, these economists know whom they serve. As The Washington Post recently reported, “GOP strategists and insiders argue that the bill adheres to a core Republican philosophy: Lowering taxes unleashes growth. There’s a belief in the GOP ranks that once the bill is passed, the economy will do so well that voters will change their minds.”
If you were an economist, and you wanted to curry favor with well-financed people who believe that lowering taxes increases growth, but you also knew that tax cuts do no such thing, what would you do?
If you liked your current perch as a courtier to Republican powerbrokers, and if you were an unrepentant ideologue yourself, you would do what the economists who wrote that letter did, ignoring evidence while twisting words and numbers to mean whatever your masters wish to hear. It is entirely disreputable, but it certainly has its perks.
Only a hard-core liberal such as Mr. Buchanan would believe that a lesser tax burden for hard-working Americans is a bad thing. Even the leftist Washington Post declared that Democrat attacks on the tax reform package are simply not accurate.
No, actually most economists think the tax proposal is a mess.
Left wing writer dislikes right wing economists.
Always the same nonsense from these conservative oligarchs. Keep up the good work Neil!
As a professional economist, I got the email solicitation. Curiously, I received a similar request from the same folks during the financial crisis to condemn the Fed’s stimulus program. That one predicted runaway inflation and a debasement of the dollar. Only a handful of partisan hacks signed onto that letter and guess what? The dollar rose and inflation continued to decline. Beware of for-hire economists bearing political agendas.
Professor, again thank you for your analysis. It lays bare the nonsense that the Republicans put forth. I would hope that someone would forward this article to the hosts of the Sunday morning news programs, such as Meet the Press; and that the discussions included these points that you raise. I realize this is unlikely, but would hope that the time the networks devoted to the serious matter of the proposed “tax bill” be increased given its widespread impact on everyone. ( I would note that last Sunday on Meet the Press the topic was on the interpersonal improprieties; in spite of Leader Pelosi’s attempt to have time devoted to the topic, and the moderator redirected the discussion back to the sensational- and Ms. Pelosi ran past the time allotment to try to make comments about the tax topic. In my view hardly appropriate given the national impact of changes to taxes. ) In my view the rush to pass something- anything has left the nation vulnerable to bad policy; that as you point out is not based in facts, but “double-talk”.
What an ad hominem-filled joke. How sad Justia even entertains printing such unprofessional screeds.