This week, in testimony before the House Ways and Means Committee, Douglas Holtz-Eakin, the former Congressional Budget Office director who tried to implement dynamic scoring, was asked whether he thinks tax cuts pay for themselves. Holtz-Eakin, who served as senior economic adviser to the 2008 presidential campaign of Sen. John McCain (R-Ariz.), answered simply, “No.”
But Holtz-Eakin said economic models have improved since his days at the CBO, making it easier to assess what effects changes in tax policy do have on the economy. Douglas Elmendorf, the current CBO director, last week agreed under questioning by Sen. Patrick J. Toomey (R-Pa.), a supercommittee member, that wiping out special deductions in the tax code and using the savings to lower tax rates for everyone could “enhance revenues to the government” without explicitly raising taxes.
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)
Responding to claims his "Buffett rule" is class warfare, President Obama on Thursday said asking a billionaire to pay same tax rate as a teacher makes him "warrior for the middle class." (Sept. 22)
Elmendorf cautioned that “the magnitude of that effect, of course, depends on the specifics of the policies that would be enacted.” The CBO has found that the effect may be quite small.
In a recent analysis of a generic plan that would reduce deficits by $2 trillion over the next decade under traditional methods of cost analysis, the CBO found that such legislation could actually reduce borrowing by an additional $600 billion, in part because lowering the deficit would improve the economy. But most of the extra savings came from lower interest costs on the debt. A stronger economy added just $200 billion through higher tax collections and lower spending on social safety-net programs.
“There’s not a lot of revenue, not as much as some would like to assume and hope for,” said Senate Finance Committee
Chairman Max Baucus (D-Mont.).
And not all tax changes are good for the economy, Thomas Barthold, chief of staff of the congressional Joint Committee on Taxation, told the supercommittee Thursday. For example, lowering corporate tax rates by eliminating the biggest corporate tax break — accelerated depreciation — “is probably not going to be pro-growth,” Barthold said. “It’s probably going to be much more neutral.”
That could be bad news for those pushing the supercommittee to look at a tax code overhaul. Senior aides said the committee is far more likely to tackle the corporate code than the sprawling code for individuals. Work on the corporate code is further along, they said, and both parties agree that corporate changes should be aimed at lowering the 35 percent rate, not reducing budget deficits.
But the agreement tends to end there. And key Republicans reject the idea of rewriting the corporate code without also doing something to benefit the millions of business owners who report profits on their individual returns, a position that leads right back into the quagmire of the individual code.
Longtime tax lobbyists laugh at the idea that the supercommittee could make complicated tax decisions by the Nov. 23 deadline. Without a tax overhaul, senior aides in both parties say, the supercommittee is likely to cobble together a narrow package of spending cuts, war savings and tax loophole closures that leaves the big questions about taxes and entitlement programs for the 2012 campaign.
“If they get to $1.5 trillion,” said a GOP leadership aide, “that would be gigantic in this Congress.”