A closer look at the math underlying the House Republican tax reform plan shows the difficulty of moving such an ambitious package through Congress, but also that the arithmetic may be easier for Paul Ryan and company in some ways than commonly thought.
The Committee for a Responsible Federal Budget, a nonprofit group that advocates lower deficits, ran through the numbers of the House GOP plan in a new analysis, looking at a few possibilities to determine whether it might lose money and by how much.
The bottom line: The rate-cutting plan would add $1 trillion to deficits over the next 10 years, based on calculations from the Tax Policy Center, another Washington think tank, or $200 billion, using figures from the Tax Foundation, a third organization.
That leaves Republicans short of being able to say that their plan doesn’t lose revenue. That’s true even after taking into account the new tax revenue that would come from the faster economic growth expected from the rate cuts — both analyses factor in that dynamic effect, with the Tax Foundation counting on a bigger boost to the economy.
In other words, even with all the tough choices Republicans already made in their plan, such as the border adjustment feature that has created enormous business opposition and divided the caucus, they still have to do more to say that reform is revenue-neutral, as they have indicated is their plan.
Those numbers already assume that Republicans will take away $800 billion worth of tax breaks from special interests, each of which will lobby furiously to be taken off the chopping block. That assumption, said Marc Goldwein, the committee’s policy director, is “more aggressive than probably what they would do” when it comes to actually writing the legislation.
Not that reaching balance would be impossible. But it would require more politically unpalatable choices, such as cutting enormously popular tax breaks such as the deduction for mortgage interest payments or the deduction for charitable contributions. House Republicans said when they introduced their plan that they would address those breaks, meaning that altogether they may be closer to offsetting the rate reductions than it seems on paper.
The good news, though, is that in the second decade, the plan is expected to lose very little or even run a surplus.
Although projections of tax or spending measures more than 10 years out are extremely speculative, they are important for procedural reasons. Republicans are planning to pass tax reform using a procedural tool known as reconciliation that allows legislation to clear the Senate with only 51 votes, rather than the 60 needed to overcome a filibuster. But a requirement of reconciliation is that the legislation doesn’t add to deficits after the initial 10-year budget window.
Including the effects of economic growth, the tax plan would raise between $550 billion and $1.5 trillion in the second decade, according to the committee. The first decade looks worse than the second, on paper, because of the cost of transitioning to the new system.
