GOP tax plan is Bush tax cuts on steroids

WASHINGTON — A specter is haunting the Republican Party — the specter of Ronald Reagan.

Ever since his two landslide victories, conservatives have treated it as received wisdom that cutting taxes as much as possible is the onefold path to economic and political nirvana. Well, make that cutting the top tax rate as much as possible. The idea, known as supply-side economics, is that the lower the top rate, the more top earners will work and invest, and the more growth there will be to – keep waiting for it – trickle down to everyone else. Never mind that this hasn’t really worked in the past and couldn’t even work in the present, at least not that much, now that the top rate is already pretty low. This is still an orthodoxy that Republicans are barely allowed to deviate from, and only then if they say three Hail Reagans as penance.

Just look at what happened to Senator Marco Rubio, Fla., and Mike Lee’s, Utah, tax plan. It started out as what was supposed to be a warm and cuddly kind of supply-side economics that was like the Bush tax cuts, only a little less regressive. But then the CNBC class decided that this crossed the line into heresy, and demanded more tax cuts for themselves to appease the pro-growth gods. They got them. The result is what would in all likelihood be an even bigger budget-busting giveaway to the top 1 percent than anything George W. Bush ever dreamed up. That’s the price “reform conservatives,” or reformocons, apparently have to pay to get the rest of the party to go along with anything that helps the middle class. And it’s even higher than it used to be.

See if this sounds familiar. A Democratic president comes into office offering hope during a downturn. The Republican minority, though, refuses to negotiate with him, and squawks that his policies will only scare the private sector into an even deeper slump. Apparently raising the top marginal tax rate to 39.6 percent is the first step on the road to serfdom. Now for awhile this looks like a smart political strategy. The still-sluggish economy lets Republicans win back Congress during the midterms, and, from there, they manufacture one crisis after another to try to weaken the president so that he loses reelection. But then things fall apart. The president still wins a second term, in large part, because middle-class voters don’t feel like Republicans’ super supply-side tax plan would help them. Even worse, the economy starts picking up and markets start taking off, enough that unemployment will be under 5 percent and stocks will be at all-time highs by the time the next election rolls around. So much for socialism killing the recovery. What’s to be done? That’s the question George W. Bush faced in 2000, and that, well, Jeb Bush (or Scott Walker or Marco Rubio) will also face in 2016.

History might not repeat, but it looks likely.

George W. Bush’s big idea was that instead of trying to cut the top rate from 39.6 to, say, 28 percent, Republicans should settle for 35 percent. That way there’d be money left over for them to expand, among others, the Earned Income Tax Credit and the Child Tax Credit. That way there’d be something for the middle class. But did Bush get the high priests of the supply-side to agree to this? Well, by giving them the real goodies: a capital gains tax cut from 20 to 15 percent, a dividend tax cut from 39.6 to 15 percent, and an estate tax cut eventually all the way down to zero. That’s why, even though this did boost middle-class after-tax incomes by 2.2 percent, it boosted the top 1 and 0.1 percent the most, up 5.6 and 6.9 percent, respectively. But that didn’t stop the Bush administration from claiming that this was really about helping someone like a single waitress with two kids. Or stop the conservative Heritage Foundation from saying that, rather than being a fiscally irresponsible exercise in upward redistribution, the Bush tax cuts would actually pay off the national debt by increasing growth so much that revenue wouldn’t fall that much.

That’s the same big idea that Marco Rubio and Mike Lee have today. They also want to cut the top rate from 39.6 to “only” 35 percent, and use the money that could have gone into cutting it even further to expand the Child Tax Credit from $1,000 to $3,500 instead. Now that credit would only be refundable against payroll and income taxes – so if you didn’t owe any, you wouldn’t get any help – which is why most of its benefits would go to the middle and upper-middle classes. The nonpartisan Tax Policy Center estimates that, altogether, this plan would raise after-tax incomes 1 percent for the bottom 40 percent, around 2.4 percent for the next 50, 2.8 percent for the top 1, and 3.8 percent for the top 0.1. That adds up to a lot of red ink, though: $2.4 trillion more in deficits over the next decade, to be exact.

So they went back to the drawing board, and sketched something that would blow up the budget even more. Why? Well, the supply-siders decided that this plan wasn’t conservative enough, if not an outright “triumph of liberalism.” And it was going to take a lot more than cutting investment taxes to 15 percent for them to change their minds. That’s why the new Rubio-Lee plan would cut capital gains taxes from 23.8 percent to zero, dividend taxes from 23.8 percent to zero, and the estate tax from 40 percent to zero. That’s a lot of zeroes. Not only that, but it would also cut the corporate tax rate from 35 to 25 percent, stop taxing overseas earnings, and allow businesses to deduct all their expenses at once. Nobody’s run the numbers yet, but it’s more than safe to say that most of these new tax cuts would go to the top 1 percent. Just think about this. The Tax Policy Center says that getting rid of all investment taxes would, on average, give someone in the middle 40 to 60 percent a $66 tax cut – don’t spend it all in one place! – while the top 1 percent would get $61,891 and the top 0.1 percent would get $401,554.

It’s hard to imagine this would do anything but explode inequality and the deficit by around $4 trillion or so. The conservative Tax Foundation is giving it the old college try, though, by claiming that this would increase growth so much that, rather than costing the government $414 billion a year, it would increase revenues by $94 billion a year. That’s what George W. Bush would call some fuzzy math.

Reform conservatism is just compassionate conservatism with even more tax cuts for the rich. Now it’s true that a lot of economists think a progressive consumption tax – in which investment income, or any for that matter, isn’t taxed, and spending is taxed instead – would be the best one. But that’s not what Rubio and Lee are proposing. This is the old George W. Bush formula of tax cuts for the rich and tax credits for the rest, just on steroids.

If this is reform conservatism, what exactly is getting reformed?

O’Brien is a reporter for Wonkblog covering economic affairs. He was previously a senior associate editor at The Atlantic.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Local News

A firefighter stands in silence before a panel bearing the names of L. John Regelbrugge and Kris Regelbrugge during the ten-year remembrance of the Oso landslide on Friday, March 22, 2024, at the Oso Landslide Memorial in Oso, Washington. (Ryan Berry / The Herald)
‘Flood of emotions’ as Oso Landslide Memorial opens on 10th anniversary

Friends, family and first responders held a moment of silence at 10:37 a.m. at the new 2-acre memorial off Highway 530.

Julie Petersen poses for a photo with images of her sister Christina Jefferds and Jefferds’ grand daughter Sanoah Violet Huestis next to a memorial for Sanoah at her home on March 20, 2024 in Arlington, Washington. Peterson wears her sister’s favorite color and one of her bangles. (Annie Barker / The Herald)
‘It just all came down’: An oral history of the Oso mudslide

Ten years later, The Daily Herald spoke with dozens of people — first responders, family, survivors — touched by the deadliest slide in U.S. history.

Victims of the Oso mudslide on March 22, 2014. (Courtesy photos)
Remembering the 43 lives lost in the Oso mudslide

The slide wiped out a neighborhood along Highway 530 in 2014. “Even though you feel like you’re alone in your grief, you’re really not.”

Director Lucia Schmit, right, and Deputy Director Dara Salmon inside the Snohomish County Department of Emergency Management on Friday, March 8, 2024, in Everett, Washington. (Ryan Berry / The Herald)
How Oso slide changed local emergency response ‘on virtually every level’

“In a decade, we have just really, really advanced,” through hard-earned lessons applied to the pandemic, floods and opioids.

Ron and Gail Thompson at their home on Monday, March 4, 2024 in Oso, Washington. (Olivia Vanni / The Herald)
In shadow of scarred Oso hillside, mudslide’s wounds still feel fresh

Locals reflected on living with grief and finding meaning in the wake of a catastrophe “nothing like you can ever imagine” in 2014.

Everett mall renderings from Brixton Capital. (Photo provided by the City of Everett)
Topgolf at the Everett Mall? Mayor’s hint still unconfirmed

After Cassie Franklin’s annual address, rumors circled about what “top” entertainment tenant could be landing at Everett Mall.

Everett
Everett man sentenced to 3 years of probation for mutilating animals

In 2022, neighbors reported Blayne Perez, 35, was shooting and torturing wildlife in north Everett.

The Washington State University Snohomish County Extension building at McCollum Park is located in an area Snohomish County is considering for the location of the Farm and Food Center on Thursday, March 28, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
Year-round indoor farmers market inches closer to reality near Mill Creek

The Snohomish County Farm and Food Center received $5 million in federal funding. The county hopes to begin building in 2026.

Dorothy Crossman rides up on her bike to turn in her ballot  on Tuesday, Aug. 1, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
Everett leaders plan to ask voters for property tax increase

City officials will spend weeks hammering out details of a ballot measure, as Everett faces a $12.6 million deficit.

Starbucks employee Zach Gabelein outside of the Mill Creek location where he works on Friday, Feb. 23, 2024 in Mill Creek, Washington. (Olivia Vanni / The Herald)
Mill Creek Starbucks votes 21-1 to form union

“We obviously are kind of on the high of that win,” store bargaining delegate Zach Gabelein said.

Lynnwood police respond to a collision on highway 99 at 176 street SW. (Photo provided by Lynnwood Police)
Police: Teen in stolen car flees cops, causes crash in Lynnwood

The crash blocked traffic for over an hour at 176th Street SW. The boy, 16, was arrested on felony warrants.

The view of Mountain Loop Mine out the window of a second floor classroom at Fairmount Elementary on Wednesday, Jan. 10, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
County: Everett mining yard violated order to halt work next to school

At least 10 reports accused OMA Construction of violating a stop-work order next to Fairmount Elementary. A judge will hear the case.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.