Something About the Speaker (Footnote Fury)

House Speaker Paul Ryan (R-WI01) speaks at his primary night press conference, 9 August 2016, in Janesville, Wisconsin. (Photo by Darren Hauck/Getty Images)

“The new Paul Ryan tax cuts make the Bush tax cuts look like socialism.”

Jonathan Chait

Steve Benen frames the issue well enough:

House Speaker Paul Ryan (R-Wis.) has largely pulled off an impressive public-relations gambit in recent years. The Republican leader has recast himself as an anti-poverty crusader, without making any meaningful changes to his far-right agenda, simply by using the word “poverty” a whole lot.

But it’s occasionally worthwhile to look past the rhetoric and focus on the hard data ....

.... Ryan’s tax plan is crafted in such a way as to give 99.6% of the benefits to the wealthiest of the wealthy by 2025. The other 0.4% would be divided up across the other 99% of us.

This is a feature, not a bug, of the House Speaker’s approach to economic policy. Ryan genuinely believes that massive tax breaks for those at the very top will spur economic growth that would, in time, benefit everyone. For the Wisconsin congressman, trickle-down policy, its track record notwithstanding, remains the most responsible course to broad national prosperity.

The lede for all this comes via Max Ehrenfreund of the Washington Post

The House Republicans’ proposal for tax relief could force the government to borrow trillions of dollars to continue operating and might even weaken the economy, according to a new analysis from the nonpartisan Tax Policy Center.

The Tax Policy Center (Nunns, et al.), for its part, summarizes that the House Republican “tax reform blueprint”―

would significantly reduce marginal tax rates, increase standard deduction amounts, repeal personal exemptions and most itemized deductions, allow businesses to expense new investment, and not allow businesses to deduct net interest expenses. Taxes would drop at all income levels in 2017, but most savings would go to the highest-income households. Federal revenues would fall by $3.1 trillion over the first decade before accounting for added interest costs and macroeconomic effects. Including those factors would increase the cost to at least $3.2 trillion over the first decade and $7.4 trillion over the second ten years.

―and, furthermore, that’s the part of the analysis that makes sense. Turning the page to consider the report proper, one undertakes to countenance disaster.

The proposal would reduce tax rates, simplify many provisions, and convert the taxation of business income into a cash-flow consumption tax. Many important details are not specified in the blueprint. We needed to make assumptions about these unspecified details for our analysis (these are included in appendix A). In addition, Speaker Ryan’s staff says the plan will be adjusted to achieve revenue neutrality if necessary after including macroeconomic feedback effects.

The Tax Policy Center (TPC) has estimated the revenue cost and the distributional effects of a plan consistent with the House GOP blueprint. We estimate that a plan such as this would reduce federal revenue by $3.1 trillion over the first decade of implementation and by an additional $2.2 trillion in the second decade, before accounting for added interest costs or considering macroeconomic feedback effects. The revenue loss is primarily due to reductions in business taxes.

TPC, in collaboration with the Penn-Wharton Budget Model (PWBM), also prepared two sets of estimates of the House GOP plan that take into account macroeconomic feedback effects. Both sets of estimates indicate that the plan would boost GDP in the short run, reducing the revenue cost of the plan. However, including interest costs, the federal debt would increase by at least $3.0 trillion, even with these positive macroeconomic feedback effects on revenues. By the end of the second ten years, the long-run PWBM indicates that GDP would begin to grow more slowly due to the effect of growing budget deficits crowding out investment, and the federal debt would increase by $6.6 trillion. These estimates are sensitive to parameter assumptions and the effects on GDP could be larger or smaller in both the short- and the long-run. The plan would cut taxes at every income level in 2017, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income. Overall, the plan would cut the average tax bill in 2017 by $1,810, increasing after-tax income by 2.5 percent. Three-quarters of the tax cuts would benefit the top 1 percent of taxpayers and the highest-income taxpayers (0.1 percent of the population, or those with incomes over $3.7 million in 2015 dollars) would experience an average tax cut of about $1.3 million, 16.9 percent of after-tax income. Households in the middle fifth of the income distribution would receive an average tax cut of almost $260, or 0.5 percent of after-tax income, while the poorest fifth of households would see their taxes go down an average of about $50, or 0.4 percent of their after-tax income. In 2025, the top 1 percent of households would receive nearly 100 percent of the total tax reduction. Households in some upper-income groups would have tax increases on average, and households at other income levels would have smaller average cuts, relative to their after-tax income, than in 2017.

The plan would reduce the top individual tax rate to 33 percent, reduce the corporate rate to 20 percent, and cap at 25 percent the rate on profits of pass-through businesses (such as sole proprietorships and partnerships) that are taxed under the individual income tax. Individuals could deduct half their capital gains, dividends, and interest, reducing the top rate on such income to 16.5 percent.

The plan would increase the standard deduction and child tax credit. It would repeal the personal exemptions and all itemized deductions except for charitable contributions and home mortgage interest. The plan would also eliminate the alternative minimum tax (AMT), estate and gift taxes, and all taxes associated with the Affordable Care Act (ACA).

The corporate income tax would be replaced by a cash-flow consumption tax that would apply to all businesses: investments would be immediately deducted (i.e., expensed) and business interest would no longer be deductible. The cash flow tax would be border adjustable, meaning receipts from exports would be excluded and purchases of imports would not be deducted. The plan would move the US tax system to a destination-based system in which only income from sales to US consumers would be taxable.

The marginal tax rate cuts would boost incentives to work, save, and invest if interest rates do not change. The plan would reduce the marginal effective tax rate on most new investments, which would increase the incentive for investment in the US and reduce tax distortions in the allocation of capital. Increased investment would raise labor productivity and US wages by increasing capital per worker. However, increased government borrowing could push up interest rates and crowd out private investment, thereby offsetting some or all of the plan’s positive effects on private investment unless federal spending was sharply reduced to offset the effect of the tax cuts on the deficit.

(2-3)

Jonathan Chait, for his part, goes with an explanatory headline that sounds nearly absurdist―”Paul Ryan Tired of Giving Rich People Most of the Tax Cuts, Decides to Give Them All of the Tax Cuts”, but is also very nearly true:

A typical Republican tax cut will give about 40 percent of its tax cuts to the richest one percent. Ryan’s plan, according to a new analysis by the Tax Policy Center, will give three-quarters of its tax cuts to the richest one percent in the first year. And that’s only because the cuts are slowly phased in. By 2025, the highest-earning one percent will enjoy 99.6 percent of the tax cuts. The remaining 0.4 percent will be divided up among the other 99 percent of the country. The new Paul Ryan tax cuts make the Bush tax cuts look like socialism.

Questions abound―(Is it really fair to project that increasing capital per worker effectively results in raising both labor productivity and wages?)―but some might seem obscure compared to the basic proposition that this is something we might want to pay some attention to, as it would also appear to be the Donald Trump budget and therefore coming soon to a political argument near you, with expected formal rehash in the new year as one of the few things House Republicans are capable of trying to get around to.α

Unlike, say, criminal justice reform.

____________________

α Ask not for a continuing resolution; ask instead … er … ah … right. Over in the Senate, everyone knows it’s a question, for Mitch McConnell, of how fast he can get his caucus the hell out of town in order that they don’t damage themselves any more than absolutely necessary; it’s election season, after all, and a Majority Leader must have his priorities, right? Anyway, a couple weeks ago, Andrew Taylor suggested, “The short-term spending measure is sure to pass”, on the presumption that, “The alternative is that Republicans would get the blame for a government shutdown, as they did in 2013”. And then he checked himself: “But it’s a complicated path for the temporary spending bill”. A day later, Juan Williams checked in for The Hill, noting that “hardline conservatives in the House Freedom Caucus don’t care about history”, and his analysis really is worth reading because he works gangs and stabbing into it. Because, well, right, this House Republicans he’s talking about:

At the moment, Freedom Caucus members are already upset with Ryan after the defeat of one of their most prominent members, Rep. Tim Huelskamp, in his Kansas primary last month. Caucus members are telling reporters Ryan did not do enough to help Huelskamp.

“How can you have a gang, and have one in your gang get stabbed, and do nothing?” one caucus member told the Huffington Post in an interview last week. “You got to stab somebody, or else what’s the point of having a gang?”

It’s one of the fun things about anonymous quotes, though; inventing fake quotes is not one of Matt Fuller‘s known talents. But, yes, when even the footnotes tumble down the mountain like that … er … ah … right, you try explaining Congress. No, seriously, all this is just about the continuing resolution. You know, This week. And, hell, the funny thing two weeks ago was that both Taylor (“House conservatives are looking to press ahead with”) and Williams (“House conservatives are looking to press ahead with”) agreed that an impeachment resolution against IRS Commissioner John Koskinen―for exactly no reason under the sun except to be able to say they impeached somebody―would provide some manner of complication, and, yes, it’s true that drama played out last week when the HFC maneuvered to force a vote, which was then called off for a deal to forestall the vote, which in turn has the effect of preserving the resolution against a looming spectre of defeat.

So, yeah. This is your House of Representatives. Oh, right. This is a footnote.

Image note: House Speaker Paul Ryan (R-WI01) speaks at his primary night press conference, 9 August 2016, in Janesville, Wisconsin. (Photo by Darren Hauck/Getty Images)

Benen, Steve. “The campaign for criminal justice reform ends with a whimper”. msnbc. 20 September 2016.

—————. “Wealthy would reap a windfall under Paul Ryan’s plan”. msnbc. 20 September 2016.

Chait, Jonathan. “Paul Ryan Tired of Giving Rich People Most of the Tax Cuts, Decides to Give Them All of the Tax Cuts”. New York. 19 September 2016.

Ehrenfreund, Max. “Analysis: By 2025, 99.6% of Paul Ryan’s tax cuts would go to the richest 1% of Americans”. The Washington Post. 16 September 2016.

Fuller, Matt. “House Conservatives Plot Coup Against Speaker Paul Ryan”. The Huffington Post. 30 August 2016.

Huetteman, Emmarie. “House Calls Off Vote to Impeach I.R.S. Chief in Favor of Formal Hearing”. The New York Times. 15 September 2016.

McPherson, Lindsey. “Bipartisan Majority Could Have Stopped House IRS Impeachment Vote”. Roll Call. 19 September 2016.

—————. “Freedom Caucus to Force Vote on IRS Impeachment Next Week”. Roll Call. 9 September 2016.

Nunns, James R. et al. An Analysis of the House GOP Tax Plan. Tax Policy Center. 16 September 2016.

Ota, Sophie. “Can the Senate agree this week on how to pay for Zika fight?”. McClatchy DC. 19 September 2016.

Taylor, Andrew. “Lawmakers likely to do what they do best: the bare minimum”. The Big Story. 4 September 2016.

Williams, Juan. “GOP leaders must pick a poison on shutdown”. The Hill. 5 September 2016.

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