On June 2, 2017, the Bureau
of Labor Statistics released the May 2017 jobs report. Against estimates of 175,000 net new jobs, it
reported only 138,000. If economic
forecasters are so far off on one month, how can the Congressional Budget
Office produce a ten-year (120 months) forecast of revenue and expenditure that
is even remotely accurate?
Answer? It can’t.
The ten-year rule (Byrd Rule)
of revenue neutrality that follows a reduction in tax rates, which determines
if tax cuts expire or continue after ten years, is arbitrary. There is no scientific way to project that revenue
and expenditure will balance over one year, much less ten. Let’s be honest about this.
Revenue-neutrality is a game
Members of Congress play to pretend they are serious about not allowing tax
cuts to increase public debt. But they
are rarely serious about balancing the federal budget under any circumstances.
Congress enabled the Bush and
Obama administrations to pile up $15 trillion in public debt. Indeed, Congress has presided over a
deficit-free (actually surplus) budget only 4 times since 1970. To sacrifice
tax cuts on the altar of revenue neutrality, and the possibility of pushing
growth up from 2%, where it has been stuck since the Great Recession of 2008, to
3%, is a case of crocodile tears
By definition, revenue
neutral means no net tax cut. In
principle, broadening the tax base would permit lower tax rates with no loss in
revenue, but good luck with that. Republicans
in blue states vigorously oppose eliminating the deduction for state and local
taxes ($1.3 trillion in less revenue to the Treasury over 10 years), and almost
no one wants to eliminate the health insurance exclusion.
In 1993, at the age of 23, Paul
Ryan began working for Jack Kemp as a speechwriter and for two years at his
research organization Empower America.
Ryan first entered Congress in 1999, four years later. As Speaker, he seems to have forgotten
everything Kemp taught him about tax cuts.
Kevin Brady, for his part, is
enjoying his position of power as Chairman of the House Ways and Means
Committee too much to give up his love of the Border Adjusted Tax. He projects it would collect $1 trillion in
taxes over ten years facilitating revenue-neutral tax reform.
Et tu, Greg Mankiw? (NYT, op-ed, June 3, 2017) For Bush, tax cuts were OK but not for Trump.
Members of Congress keep
searching for the Holy Grail of revenue-neutral tax cuts/tax reform, but your
friendly proprietor really doubts they want to find it. Gary Cohn, chairman of the National Economic
Council in the White House, cannot answer with a straight face if he would
accept a cut in the corporate tax rate if that were the only measure Congress
would approve. No, he has to maintain
the fiction of comprehensive tax reform to claim that any cut in tax rates will
not increase the public debt or expire over the next ten years.