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“Don’t Let The GOP Buy Your Vote, Stupid”: The GOP Has Zero Credibility When It Comes To Fiscal Responsibility

If you want to understand exactly how the Republicans plan to buy the votes needed to win the 2016 presidential election, look no further than “The Economic Growth and Family Fairness Tax Plan.”

Heard of it? The plan, which is being touted with Willy Loman-esque desperation by Sens. Marco Rubio and Mike Lee, seeks to fix our “antiquated and dysfunctional…federal tax system.” And it’s won slow clap after slow clap from Republican-friendly conservatives at Americans for Tax Reform, National Review, and The American Enterprise Institute, whose James Pethokoukis raves, “Lee and Rubio might have cooked up the first great tax cut plan of the 2000s.”

Yeah, not so much. Despite some good features that would likely spur economic growth—such as reducing corporate tax rates by 10 percentage points, switching to a territorial collection system, and capping business-income rates filed on individual Schedule C forms—what the plan does is return us to the early years of the George W. Bush presidency, when budget continence was never allowed to get in the way of shoveling cash to targeted voters.

Recall, for instance, how Bush and a Republican Congress pushed through an unfunded (and unnecessary) Medicare prescription drug plan back in 2003 as a straight-up gift to seniors, who had voted Democratic in 2000. Mission accomplished: Bush went from getting just 47 percent of the senior vote against Al Gore in 2000 to pulling 52 percent of the 65-plus crowd against John Kerry in 2004.

At least Bush was pissing away theoretical budget surpluses that were falsely projected to last far into the future. After years of record-setting deficits and mounting national debt, today’s politicians certainly don’t have that excuse. Yet last year’s Republican budget resolution called for net spending increases every year for the next 10 years, starting at $3.7 trillion and culminating in projected spending of $5 trillion in 2024 (in current dollars). And given the whopping increases in real per-capita spending under a Republican president and Congress during Bush’s first term in office, the GOP has zero credibility when it comes to fiscal responsibility.

There’s no doubt that a spending hawk such as Lee, who has proposed a balanced-budget amendment in the past, knows that. Yet at the heart of his and Marco Rubio’s plan is a massive giveaway to parents in the form of a new $2,500 child tax credit (this would be added to an already existing $1,000 child credit) with no phase-out due to income.  However, because it’s “limited to the sum of total income and payroll tax liabilities, including employer-side payroll tax liability,” it means that low-income parents won’t be able to claim the full amount.

The expanded child credit is a big reason why, as AEI’s Pethokoukis grants, the plan would “lose something like $4 trillion in federal tax revenue over a decade, maybe half that if you apply ‘dynamic scoring’ that factors in the effects of economic growth.” (Dynamic scoring attempts to model changes in people’s behavior to changes in the tax code. While the method is easily abused, its core insight—that we change our consumption patterns when costs and benefits vary—is sound.)

But unlike cutting taxes on business activity or trimming top marginal tax rates, expanding the child tax credit has nothing to do with spurring economic growth. This is something that conservatives grant in most contexts. As Curtis S. Dubay of the Heritage Foundation wrote just last year, “Increasing the credit would be a targeted tax cut that would put more money in the pockets of people who qualify for the expansion. However, it would not improve economic growth like rate reductions would because a [child tax credit] increase would not reduce those disincentives on productive activities.”

The free-market Tax Foundation agrees. In fact, in an analysis of the Rubio-Lee plan, it ran both static and dynamic scores of the plan. On its static score for the next 10 years, the Tax Foundation found the Rubio-Lee plan meant serious reductions in annual federal revenue. For instance, switching to just two tax brackets of 15 percent and 35 percent would mean $31 billion less each year compared to current law. The full expensing of business equipment would lead to another annual loss of $78 billion, while the changes to the business taxes would cut $210 billion. And the expanded child tax credit would mean the feds would forgo another $173 billion.

Yet in its dynamic score of the same provisions, something different happens. The consolidation of tax brackets yields an average annual net gain of $5 billion, full expensing yields of $115 billion, and the changes in business taxes pulls in a net of $210 billion a year. But the expanded child tax credit? It still shows an average annual loss of $173 billion.

So the expanded child tax credit has nothing to do with promoting growth. Indeed, as my frequent co-author Veronique de Rugy points out at National Review, the generally accepted best way to promote economic growth via tax policy is by cutting high marginal rates. But because of the size and scope of Rubio and Lee’s expanded child tax credit they can’t reduce the top individual rate below 35 percent without punching an even bigger hole in revenue. “If bolstering the economic status of families is the point of all this,” she writes, “the way to go is lower tax rates, not a tax credit.”

In their explanation of the plan, Rubio and Lee claim that the expanded child tax credit is simply a way of abolishing what they call “the Parent Tax Penalty.” I’m sure I’m not the only one who has trouble following the logic here: “As parents simultaneously pay payroll taxes while also paying to raise the next generation that will pay payroll taxes, parents pay more into the old-age entitlement systems.” Huh? Parents pay to raise their children, yes. When those kids enter the workforce, they (not their parents) will pay taxes on their wages. Forget those “It’s a child, not a choice” bumper stickers. Kids today apparently are to be most valued for their ability to pay into unsustainable old-age retirement plans that need to be scrapped, not propped up.

Questions abound: If the amount of income subject to Social Security taxes is capped, doesn’t it also make sense then to phase out the credit above certain income levels? What about all the tax dollars that flow to children (and their parents) during their first 18 to 21 years? And if the expanded child tax credit is supposed to credit parents for future tax payments made by their children (yes, getting complicated), then why are low-income parents’ credits “limited to the sum of total income and payroll tax liabilities”? Aren’t we crediting parents for their kids’ future tax payments?

I’d argue instead that the “family fairness” portion actually has very little to do with the future past the 2016 election. Expanding the child tax credit, especially in a way that keeps the full amount for middle- and upper-class parents while limiting the amount low-income parents can get, is a pretty obvious (and obnoxious) way to buy votes among likely Republican voters. Especially when we all know that the GOP has no intention of trimming $173 billion out of federal spending to pay for it.

We’re long past the time for a serious conversation about how much government we want to buy and at what price. If the Obama years are any indication, the Democrats are genuinely uninterested in having that conversation. (The president’s latest budget proposal would increase spending over the next decade by more than 50 percent and end the period with bigger annual deficits than we have today.) But the Republicans, who are supposed to know better and be better on fiscal issues, are part of the problem too.

Every bit as much as the tax-and-spend Dems they love to attack, the Party of Reagan ushered in “the Golden Age of Government by Groupon.”

The only question that remains is how much our kids and grandkids will hate us for how much debt—I mean “family fairness”—we’ve amassed in their name.

 

By: Nick Gillespie, The Daily Beast, March 13, 2015

March 14, 2015 - Posted by | Fiscal Policy, GOP, Tax Reform | , , , , , , , , ,

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