Looking Up: Meanwhile, tax reform

Looking Up: Meanwhile, tax reform


In our news cycle, tax reform has been many times over eclipsed by Comey, attempts to gut the Affordable Care Act, and any number of other shenanigans. I’m not going to play attention police and tell you any of those things aren’t important, but I want to come back to tax reform for a moment, because the narratives driving the current administration/GOP tax proposals well pre-date the current president, will live on no matter how/when he leaves, and are incredibly damaging to any attempts at economic fairness.

A couple of weeks ago I attended a forum on tax reform and the racial wealth gap on Capitol Hill. Jeremie Greer of CFED (recently rebranded Prosperity Now) opened the forum with a really important point about the way the Republicans talk about our federal budget. Their narrative goes like this: Spending is bad and we can’t do more and we’re doing it for people who are undeserving. Tax breaks are good, everyone wants one, and the people who get them are deserving. However, Greer noted, they are both spending, and the tax breaks are actually the larger amount by far, and they are extremely regressive—as in they are mostly spending on wealthy individuals and corporations.

The panelists argued that to consistently reframe the narrative we need to stop talking about tax breaks and start talking about tax expenditures, and when it comes to the beneficiaries, actually name them as the subsidies that they are. The mortgage interest deduction, for example, is as much a housing subsidy as a housing choice voucher (and indeed in total costs the federal government far more).

Frank Clemente of Americans for Tax Fairness noted that advocates for various progressive causes ask for budgetary spending all the time, defending programs under threat, supporting expansions, even sometimes talking about redistribution from military to domestic spending. But the left rarely lobbies on tax reform, while the right is “religious” about it. “Whatever your issue is,” Alexandra Bastien of PolicyLink agreed, “it’s a tax code issue.” (And whatever your issue is, we could probably pay to fix a lot of it with the taxes on the $2.6 trillion in corporate profits currently being hidden off shore. Which is a matter of tax reform.)

The panel didn’t get into this part, but it made me think of OMB Director Mike Mulvaney’s attempt to claim that the administration’s massive proposed tax cuts wouldn’t add to the deficit because of something called “dynamic scoring.” In other words, the tax cuts would stimulate so much economic growth that they would “pay for themselves.”

This is ideological wishful thinking, with no empirical evidence behind it, and was rightly scoffed at by many. If all of the data following the federal tax cuts don’t convince you, the disaster unfolding in Kansas after it implemented drastic tax cuts that were right out of the no-tax playbook should. Putting money in the hands of people who will spend it (i.e. not the super rich), not sock it away in a tax-sheltered account, is what stimulates the economy.

However, the problem is in the assumptions that went into the “dynamic scoring,” not the concept itself. Though it’s clearly very susceptible to starting assumptions (as all economic models are, and they are often fed some very bizarre ones), the idea behind dynamic scoring is that you should be feeding changes that happen as a result of your initial policy change back into the model year after year. (When this is done more responsibly with the GOP and admin tax cuts they turn out to maybe be a little cheaper than face value, maybe not, but nowhere near paying for themselves.)

But you can’t do that for tax expenditures and not do it for the whole budget. After all, if the Republicans want to get credit for putative economic stimulus from tax expenditures, they sure as hell shouldn’t get to avoid the much less speculative budgetary consequences of, for example, repealing opioid addiction coverage under Medicaid—i.e. massive increases in costs for crisis care, law enforcement and incarceration, and foster care systems.

Housing the homeless (really housing, not just sheltering) has been repeatedly shown to be cheaper than allowing them to stay homeless. Infrastructure investment now will support economic growth in the future. Eviction and displacement cause massive health crises. And on and on. Often we don’t talk about these programs being budget neutral because the savings show up in different buckets from the one from which the spending happened—but that is a fixable problem.

There would be fights about the assumptions that go into modeling those consequences as well of course (though again, many of them are well-proven, and follow much more direct and predictable mechanisms than tax-expenditure stimulus). And we shouldn’t do anything to give credence to Mulvaney’s unfounded models about the effects of tax cuts.

But nonetheless, it would actually be a great benefit to the political discussion around budgets and public spending and deficits if we didn’t cede the broad idea behind “dynamic scoring” to the fiscal hawks, and didn’t cede the tax reform fight to people who hate the very idea of government.

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