THE SENATE late Thursday narrowly approved a budget plan that could cost the nation dearly. The goal is a massive tax cut with uncertain benefits for most Americans, in an economy that does not require the sort of short-term jolt that deficit-financed tax cuts are good for. The price tag is $1.5 trillion in new debt over 10 years.
The bad news is that several Republicans who previously expressed deep concern about the country's shaky finances voted for the budget outline, clearing the way for this foolish plan. The good news is that they still have a chance to show that they are not irresponsible hypocrites. Thursday's vote was just the first step in a long process of hashing out exactly what the tax cut would look like — and, therefore, how damaging it would be.
This policy push began with a much better idea: real tax reform. Congress would cut tax rates — particularly for corporations, which face a relatively high nominal rate — but would recoup the revenue by closing tax loopholes and ending big tax breaks. Both sides of this plan would help the economy. Lowering corporate rates would make the United States a more attractive place to do business. Ending tax breaks would fight tax gaming by the wealthy and cut unneeded government interference in private decisions about where to invest money. The result would be a fairer and more efficient tax code, without adding a penny to the debt. Republicans and Democrats should be able to agree on such a policy.
But as the plan has developed, Republicans have balked at doing the hard stuff — that is, raising revenue. Instead of clipping their ambitions to reduce tax rates so that it continued to line up with their willingness to offset them, Republicans have steadily gravitated toward simply not paying for them. The Senate on Thursday put a number on its fiscal recklessness, giving itself permission to leave $1.5 trillion in tax cuts unpaid-for.
Republicans respond that the way these numbers have to be officially counted makes them look worse than reality. The reasoning is complex, but the bottom line is simple: They want to use a budgeting gimmick that previous congresses have properly declined to exploit. The tax plan’s backers also argue that the cut will spur economic growth, which will eventually return more money to the Treasury than traditional budget calculations would suggest. The myth that tax cuts pay for themselves has been debunked by both economic theory and practical experience. While some “dynamic” effects are possible, they are hard to predict and certainly not as large as tax-cut enthusiasts claim.
There is still time for reason to prevail. Before the Senate voted for fiscal irresponsibility, the House passed a budget plan calling for revenue-neutral tax reform. This concept must be revived as the action turns to congressional committees, which will fill in the crucial details — which taxes will be cut, by how much, with which offsets. At the end of this process, the chambers must vote again on the whole package. The senators who surrendered to fiscal cowardice on Thursday will have one last chance to prove themselves responsible.
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