History will be made this week on the Senate floor as well as in the opulent cloakrooms adjacent to it, where cameras are not allowed. More than likely it will be in these spaces – no larger than a high school basketball arena and the adjacent locker rooms -- where the upper chamber of the U.S. Congress will draft and then pass the most significant piece of tax legislation in 31 years. Fortunately, for the Republicans who are rushing at breakneck speed to get this highly partisan, unpopular, and complex 515-page bill through the congressional sausage factory, an epidemic of sexual harassment revelations dominates the news and is keeping public scrutiny of this bill to a minimum.
What’s this about waste? At Congress's request and at taxpayers’ expense, the esteemed professional staff at the nonpartisan Joint Committee on Taxation have spent millions of dollars and thousands of hours building state-of-the-art models to study the macroeconomic impacts of changes in tax laws. Then Congress enacted new rules requiring the JCT to produce dynamic estimates for “major” legislation. Well, it doesn’t get any more major than this.
But Republicans are not anxious for that JCT study to become public and are taking advantage of a loophole in their own rule to suppress release of the JCT dynamic scores. As the Congressional Budget Office revealed yesterday, it is “not practicable” for the JCT to perform dynamic estimates in a timely manner. If “not practicable,” the dynamic scoring requirement can be waved.
So why do leaders force votes without waiting for this critical information? This is not a detail. The bill is being marketed as unleashing massive job creation with little or no effect on our already skyrocketing deficits. It would be nice for taxpayers to see these results before the vote. After all, we are paying for them.
Wait, what’s this about fraud? Based on a review of prior JCT dynamic estimates, there is good reason to expect that the estimate of current legislation will show less-than-flattering growth effects. In the short run, stimulus effects are likely to be minimal because the economy is already near full employment and the tax cuts are strongly tilted away from low-income households that would spend more than their well-off brethren. In addition, supply-side effects from lower marginal rates will be small because statutory rate cuts are small (or in some cases nonexistent). Moreover, these cuts are partially and sometimes more than fully offset by the loss of deductibility of state and local income taxes. In the long run, capital stock and productivity increases will be held in check because the most powerful incentive for investment in the bill—100 percent expensing—expires after five years and because a deficit-induced increase in interest rates will result in a crowding out of private investment.
Instead of allowing reasoned analysis to see the light of day, Republicans undoubtedly will stay true to script that their beliefs trump careful economic analysis. Here is a small sample of their public justification for a $1.5 trillion tax cut in the face of our unsustainable fiscal finances:
"We believe that we'll get faster economic growth. We don't anticipate a big deficit effect from this tax reform.”
– Rep. Mark Meadows, R-N.C., Oct 30
“We believe that we’re going to be fine on that. We believe that when you look at other analysis, whether it’s going to be Treasury or the rest, that we’re right there in the sweet spot, with economic growth that gives us more revenue with where we need to be.”
-House Speaker Paul D. Ryan, R-Wis., Nov. 7
“We believe we're going to get more than enough growth to pay for this.”
- Gary Cohn, White House economic adviser, Nov. 12
“We believe this is a responsible budget and a responsible tax reform.”
-Senate Majority Leader, Mitch McConnell, R-Ky., Nov. 12
“We believe with ... a small, modest amount of economic growth, that [deficit hike] gets completely wiped out. All you have to do is get four tenths of 1 percent of additional GDP."
- Sen. John Thune, R-S.D., Nov. 26
By the way, when you do the math, that statement by Thune implies that a $1.5 trillion tax cut will generate a modest $4.5 trillion of extra GDP. Excuse me if I don’t believe it! These comments are outside the economic mainstream. And they are likely to be contradicted by the JCT estimates – if they were allowed to see the light of day.
What’s this about abuse? After all, Republicans are not necessarily breaking any rules by moving quickly on a tax bill. But it is an abuse of power when the rapid movement is clearly intended to blur the public’s view. It is an abuse of power when there is no pressing need for reckless speed. Is there some national emergency that the tax cuts will solve that justifies not waiting a few extra weeks for the official analysis of the bill’s effects on employment and on deficits?
When Republicans are pressed on this point, they invariably respond that the general topics that are part of this reform have been studied and subject to hearings for years. That’s true. But unlike in 1986, most of the specific provisions of the legislation under consideration have received no hearings. Indeed, most experts, as you read this, are still struggling to understand dozens of billion-dollar “details” in this bill. Members who are voting on it have only a superficial understanding of it. Surely none of them have read the bill.
There is no reasoned justification for rushing this bill at unprecedented speed through the process. Republicans are doing it because they have the power—and that’s that.
Because of the necessarily sloppy drafting of this legislation, if it becomes law Treasury will be writing regulations and Congress will be enacting technical corrections for years. There are more ticking time bombs in this bill than in a Road Runner cartoon (beep, beep).
All kidding aside, uncertainty and complexity will cast a long shadow over business decisions.