Warring Republicans and Democrats on Capitol Hill have little hope of drafting an ambitious plan to tame the national debt by Thanksgiving unless they can agree on an approach to rewriting the tax code, key lawmakers and leadership aides say.
But any attempt at a tax overhaul would require policymakers to clear some daunting hurdles, including an old battle over a fundamental question: Do tax cuts pay for themselves by spurring economic growth?
Speaker John Boehner (R-Ohio) said on Thursday there is no threat of a government shutdown despite Congress' failure to approve a temporary budget extension that would have allowed the government to operate through mid-November. (Sept. 22)
The answer could be pivotal to breaking the partisan deadlock over the debt that has bedeviled Washington for months. Republicans have said they cannot support any increase in tax collections except through economic growth. And Democrats have said they cannot support additional cuts in spending except as part of a package that includes new taxes.
As a bipartisan supercommittee struggles to slice borrowing by at least $1.2 trillion over the next decade, some Republicans say an agreement to count revenue generated by economic growth — a process known as “dynamic scoring” — could be the magic elixir that greases the skids to a more far-reaching compromise.
“Smart tax reform will result in more economic activity. And additional economic activity will generate more revenue — not by raising taxes but by generating economic growth, which is what both parties want to see,” said Sen. Rob Portman (R-Ohio), a supercommittee member who is urging his colleagues to aim higher than the $1.5 trillion goal.
Some Democrats appear inclined to listen. On Thursday, as the committee probed the issue of taxes in its latest public hearing, Sen. John F. Kerry (D-Mass.) said he wanted to “second powerfully what Senator Portman said about our opportunity here.”
Given the committee’s vast powers to shape legislation and push it through Congress, Kerry urged his colleagues to “try to get to that sweet spot” where a simpler and more efficient tax code “will drive our economy, that therefore will raise revenues and help us create jobs and deal with the deficit at the same time.”
But “dynamic scoring” is a pair of dirty words among many Democrats, who remember Republican efforts during the George W. Bush administration to use it to estimate the cost of tax cuts.
“Tax cuts paying for themselves became a staple of the Republican mantra that allowed us to cut taxes and invade two countries,” said Rep. Richard E. Neal (D-Mass.), a senior member of the tax-writing House Ways and Means Committee.
Senate Budget Committee Chairman Kent Conrad (D-N.D.) called dynamic scoring “too uncertain and too open to manipulation” by those who “just want to make believe they are solving the problem.”
While a dynamic score may provide valuable insights, Conrad said, lawmakers should not rely on the hope of economic growth to do the hard work of genuine budget cutting.
“I don’t think you can just make stuff up and think that that’s going to work,” he said.
The notion that tax cuts pay for themselves was first popularized by Ronald Reagan using the famous Laffer Curve. The idea has since been discredited by economists, including most conservatives in the field.
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