REPUBLICANS ARGUE that they do not have to pay for the big tax cut they are proposing, because it will pay for itself. If they really believe that, they can prove their honesty and safeguard the nation’s financial health with one simple addition to their plan: a series of triggers that would automatically prevent it from busting the budget.
The tax scheme House Republicans released Thursday cuts corporate and individual taxes deeply without closing enough tax loopholes to offset the cost. The funding gap is a huge $1.5 trillion. For a party that has spent the better part of a decade ringing the alarm about big deficits, this is astonishingly hypocritical. For a nation with an already alarmingly high debt load, it is scary.
Republicans seek to absolve themselves by arguing that their plan actually would be fully paid for. It would jolt economic growth, they argue, which would result in a flood of new tax revenue. Independent analysts are rightly skeptical. No credible economic model and no reasonable reading of history suggests that such optimism is warranted.
If Republicans really believe that the experts are wrong, they can put their legislative language where their mouths are. They can allow their tax cuts to phase in only so long as the federal government meets revenue targets. If early cuts appear to produce economic growth and significant new federal tax income, more cuts could automatically kick in. Alternatively, most or all of the cuts could begin immediately, and some could be scaled back if the federal budget takes a big hit. The GOP plan calls for phasing out the estate tax over several years. At the least, that egregiously unnecessary measure could be canceled if the budget suffers from the rest of the tax plan.
Republicans might worry that uncertainty about future tax rates would blunt the boost cuts would give the economy. In this way, a trigger that would scale back tax cuts if they failed to produce results might essentially trigger itself. Yet such a trigger would only adjust a relatively small subset of the plan’s tax cuts, the remainder of which would be permanent; this effect, therefore, would not be large. Moreover, Republicans have yet another option: They could design a trigger that would close more unnecessary tax loopholes in case promised revenue does not appear, ensuring that the lower nominal tax rates they favor would not change. If the deficit rises under the GOP plan, additional limitations on tax subsidies that help wealthy people buy expensive houses could automatically phase in, for example.
If Republicans refuse to add this essential safeguard to their tax plan, it would be strong evidence they do not believe the story they are telling Americans about self-financing tax cuts.