How Jeb Bush’s Tax Cuts Suckered the Media

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JEB, err, GOB, demonstrating the fiscal basis of his economic plan.

If you have heard about Jeb Bush’s new tax plan by reading political reporters, you have probably heard that it is a “proposal to reform the tax code” that will “crack down on hedge fund managers” (CNN), that it is “mainstream and ordinary” with “a populist note” (NPR), that it “challenged some long-held tenets of conservative tax policy” (the New York Times), and has “a nod to the populist anger roiling both parties” (The Wall Street Journal). It is, in other words, the same sort of coverage George W. Bush received when he unveiled his tax cuts in 1999, and which the campaign successfully cast as a populist departure from traditional Republican priorities.

On the other hand, if you have learned about the tax plan from some of the new policy-focused writers, you have drawn a very different impression. It is a “large tax cut for the wealthiest” (the Upshot) and a reprise of the Bush tax cuts, but “with more exclamation points” (Wonkblog). The difference lies between journalists who write narratives drawn from quotes from campaign sources and those who build their coverage on data. George W. Bush was fortunate that data-based journalism barely existed 16 years ago. His brother is counting on the power of narrative to obscure the data.

The overall structure of Bush’s plan is crystal clear. It is made of good old-fashioned, gigantic, regressive, debt-financed tax cuts, just like his brother used to do. Politically, Bush’s plan runs into the party’s classic resource-allocation problem: Tax cuts whose benefits overwhelmingly accrue to the very rich mean less money to finance spending programs that benefit a much broader share of the population. Taking stuff from the many and giving it to the few is bad politics because the many have more votes. Bush’s solution to this dilemma involves a number of misdirection attempts.

1. Emphasize the hedge-fund loophole. The narrative news stories all led with the news of Bush’s plan eliminating the carried-interest loophole, a completely unjustifiable giveaway to hedge-funders that Republicans have long refused to eliminate. And that is a positive step. But it is a tiny one, accounting for less than one percent of the size of the revenue lost by Bush’s tax cuts. The Bush campaign bought some great press coverage very cheaply by having its minuscule tax hike on the rich obscure its overwhelmingly larger tax cuts for the rich.

2. “Growth.” The Bush campaign has circulated estimates that its tax cuts will cost $3.4 trillion if you assume no effect on economic growth, but only $1.2 trillion if you share its optimistic projections. Such a deal! But this range of outcomes frames the question squarely on the Republican side of the playing field. Why should we assume that deep tax cuts would help economic growth at all? Bill Clinton raised taxes on the rich, and conservatives predicted disaster, but a boom followed. George W. Bush cut taxes for the rich, predicted faster growth, and produced a mediocre recovery. After the Bush tax cuts on the rich expired in 2013, economic growth has accelerated. This doesn’t prove higher taxes on the rich yield higher growth, but it certainly casts doubt on the theory that cutting them from current rates will do any good at all. And, indeed, a Brookings study found that the Bush tax cuts slightly reduced economic growth — an assumption that found its way into the wonkosphere’s coverage, but not the political narrative coverage. CNN, unbelievably, reports, “It’s not clear if Bush’s tax plan would be revenue neutral,” when even the delusionally optimistic forecasts of the Bush campaign itself concede a $1.2 trillion revenue loss.

3. Trade-offs. The Bush tax cuts do offer significant tax cuts to middle- and lower-income workers. But what are the trade-offs? Well, the plan doesn’t say. The campaign’s assumption that the tax cuts will produce growth, which are themselves shaky, rely on the assumption that the plan will come with what it calls “fiscal discipline.” That means unstated spending cuts. But nobody knows what spending would be cut, enabling Bush to offer what looks like a cost-free trade-off of lower taxes to the middle class, without any specified losses. The spending cuts are real enough to appear as a solid assumption in the growth projections, but they disappear in the benefit side.

That is, of course, an utterly crucial element. Many spending programs are too popular to cut. Many others are crucial for economic growth. If the Bush administration is going to leave popular social insurance programs intact, it will put more pressure to cut transportation infrastructure, scientific research, education, and other public investments, which will further depress the economy’s long-term potential.

The trade-off problem is a political economy dilemma the Republicans have never been able to crack in three and a half decades of manic tax-cutting. They have never figured out a way to get government spending down to levels concurrent with their preferred levels of taxation. The only creativity they have shown in this area is developing new and innovative ways to hide the ball.