Congress produced yet another can-kicking, stop-gap spending bill, and now major tax reform is on its way.
The one-page outline for President Trump’s long-awaited plan – some of it, anyway – reads like a wish list for conservatives: Corporate tax rates slashed, the top income tax bracket lowered, an Obamacare tax on investments repealed. For all the talk of how the rich stand to gain, the plan doubles the standard income tax deduction helping a majority of Trump’s working class base.
But there’s a problem with this plan, a problem that has long plagued reformers in the two controlling parties: The failure to put a stop to the spending that necessitates higher taxes.
After so many promises broken, the yearly warnings of impending fiscal crisis fail to alarm anyone. I sometimes worry I am self-plagiarizing, having written the same recaps so many times year after year. Without major reforms, debt will continue to rise to unsustainable levels, yet Congress perpetually fails to take serious action.
Now, when a Republican occupies the White House, the deficit suddenly matters again, and most mainstream discussion has centered on how much Trump’s tax plan will add to it. Vice President Pence insisted Sunday to MSNBC’s Chuck Todd that while the plan might increase the deficit, “in the short term” economic growth would more than make up the gap. Democrats and some nonpartisan watchdogs are, to say the least skeptical of Pence’s forecast.
It remains unclear exactly what “pay-fors” will be included in the final package, but at least President Trump has officially abandoned the Border Adjustment Tax, which is good news – if you like affordable consumer goods and free markets.
But the deficit implications could end up imperiling the political chances of passing any major reform. Republicans who have spent the last eight years decrying debt and spending under Obama find themselves in an unenviable position – at least as long as they ignore spending.
Things don’t have to be this way.
Trump’s tax reform plan has been estimated to add around $6 trillion to the national debt over the next 10 years. When the Tax Foundation analyzed Trump’s campaign tax plan last year, they found roughly a third of that deficit impact would be made up by economic growth.
While some others have been less optimistic, we’ll work from these assumptions, which leave about $400 billion per year remaining.
It would, of course, be nearly impossible, politically and procedurally, to seek spending cuts to make up for every dollar in tax changes. But to abandon the idea outright would be unacceptable. Obvious cuts abound.
The Government Accountability Office’s 2017 study of duplication and fragmentation identifies at least $20 billion in potential savings per year. Past estimates by former Oklahoma Senator Tom Coburn have been as high as $95 billion per year. For our purposes, let’s assume a conservative total of $25 billion year or $250 billion over a decade in savings.
Back in January, news broke that the Pentagon buried an internal report that found administrative waste alone could be reduced by $125 billion over a 5-year period, without requiring layoffs or personnel reductions. There’s another $25 billion per year from the country’s biggest discretionary department.
No politically dicey changes would be required just yet on the infamous mandatory side. There are the well documented improper government payments, estimated at $144 billion for fiscal year 2016. Most of this is overpayments by Medicare and Medicaid, along with other programs like federal education grants and the EITC.
This brings the total identified savings to just under $200 billion, assuming no increases since 2016.
To be clear, no spending cut is easy – every dollar in waste has its own interest group loudly insisting no other dollar could be more important to the wellbeing of the country.
But none of these suggestions involve sequestering workers or even meaningfully changing the size or role of government and its departments. When just a few items can make up as much as half of the shortfall from a massive tax cut, it should be a sign to policymakers that focusing on spending cuts is possible.
And if Republicans believe cutting duplicative programs, self-identified waste, and improper payments is just not politically possible and not worth fighting for, perhaps they should ask themselves just what the hell they’re doing in Washington in the first place.
More at Source: Here Are the Cuts to Make Tax Reform Work – Reason.com