At least one prominent Republican isn’t impressed at all by the tax-cut proposals from the 2016 Republican presidential candidates. Yes, that would be Alan Simpson, the famously outspoken former Wyoming senator who was co-chairman of a bipartisan federal budget-deficit commission in 2010.
“They’re out there saying we can give you these big tax cuts, and we'll grow our way out it,” Simpson declared in an interview Thursday morning. “We know you can’t grow your way out of deficits, just like you can’t tax your way out.”
Republican presidential front-runner Donald Trump has proposed huge cuts, which the conservative Tax Foundation says would reduce federal revenues by a net of more $10 trillion over a decade. Former Florida Gov. Jeb Bush offered a more modest, but sizable, tax cut that that would cost anywhere from $1.6 trillion over 10 years – based on his campaign’s projection that it would spur unusually high economic growth – to $3.6 trillion based on normal calculations.
Florida Sen. Marco Rubio’s tax plan has fewer specifics, but experts have estimated it would lose more than $2 trillion of revenue over a decade. None of the proposals issued so far offer the specific, tough solutions for balancing the federal budget that Simpson and Democrat Erskine Bowles recommended when they headed the 2010 Commission on Fiscal Responsibility.
Simpson says too many Republican politicians run scared of Grover Norquist, the anti-tax crusader who has been a player in the party’s politics for more than a decade. “Grover has nailed these guys to say as soon as we cut taxes there will be roses in the street.” The often profane Simpson added, “That’s bull,” or a variation of that.
He remembers well from his long career in Congress that those roses have thorns. “They all quote Ronald Reagan on cutting taxes,” he complains. “They forget that he then raised taxes eight times,” which was needed to cover budget shortfalls caused by his first tax reductions.
All of the Republican tax cutters have spoken of budgetary offsets, but so far they have not come close to matching the gap left by the reductions in revenues. They brag about ending the preferential tax rate for so-called carried interest enjoyed by private equity or hedge-fund executives. But this elimination, whatever its merits, would raise comparatively little revenue – about $20 billion over a decade.
Trump would end many deductions and credits, but his tax cuts – lowering the top individual rate from 39.6 percent to 25 percent, the top corporate rate from 35 percent to 15 percent and eliminating the estate tax altogether – dwarf those changes.
The Tax Policy Center, run by the Brookings Institution and the Urban Institute, will soon complete a comprehensive analysis of the Republican candidates’ proposals. It is likely to show that as well as losing lots of revenue, these plans will make the tax code more regressive by bestowing the bulk of tax cuts on the wealthy.
Trump has said he doesn’t want to touch Social Security and Medicare, the big drivers of the government’s fiscal condition. Bush and Rubio, among other candidates, want to gradually raise the retirement age for Social Security eligibility, but again that won’t begin to make up for the loss in revenue.
Until the politicians seriously address reforming and paring back entitlements, Simpson points out, the long-run deficit issue will remain, making deep tax cuts an impossibility.
Of course, the 84-year-old former lawmaker doesn’t spare Democrats, noting that Bernie Sanders wants to increase Social Security benefits and that Hillary Clinton is talking about big tax cuts and “a bunch of new spending stuff.”
But neither party is talking about “real stuff,” he said. “The tragedy is we’re going to hit a tipping point where this is unsustainable.”