On Meet the Press Sunday, Chuck Todd asked Susan Collins how she could support a huge tax cut after having complained about excessive debt. “Economic growth produces more revenue and that will help to offset this tax cut and actually lower the debt,” she calmly replied. An incredulous Todd asked Collins how she could defend such a claim when every study has concluded the opposite. She cited Glenn Hubbard, Larry Lindsey, and Douglas Holtz-Eakin.
Jennifer Rubin got ahold of two of the three, Hubbard and Holtz-Eakin. Both economists denied having ever claimed the Republican tax cuts would produce enough growth to recoup the lost revenue.
This is a small moment that reveals a great deal about the relation of the Republican Party to the field of economics. Hubbard and Holtz-Eakin represent the right wing of the economic profession. Both of them have long worked closely with the party and have deep sympathy to its ideological orientation. Collins, on the other hand, represents the left wing of the Republican Party. She is indisputably the most moderate — and, arguably, the only moderate — member of her Senate caucus. And yet, on taxes, she maintains a position farther right than any serious economist can maintain. The beliefs of Republican officials and real economists are non-overlapping circles on a Venn diagram.
The Trump tax-cut plan owes its incipient success to many factors, including the insatiable thirst of its donor wing and the widespread belief that the party needed a “win” in order to stave off electoral disaster. (Why the issue to which they would stake their do-or-die effort became a regressive tax cut, rather than a more popular measure, is rarely examined.) But an underrated element in the formula is the persistent belief among the party elite in the most radical version of supply-side economics. Republican after Republican insisted their tax cut would actually increase revenue.
No serious economist believes this, but their skepticism did not infiltrate the information bubble in which Republicans reside. Not even macroeconomic forecasters in the private sector — people putting real money behind the accuracy of their analyses — have concluded the tax cuts would come close to recouping their cost. Goldman Sachs forecasts the tax cuts would recoup just 20 percent of the lost revenue, and beginning in 2020, the growth effect “looks minimal and could actually be slightly negative.” A survey of 42 economists found only one who even agreed that, if the tax cut passes, economic growth “will be substantially higher a decade from now than under the status quo.” And even that endorsement of “substantially higher” growth falls short of endorsing the belief the tax cuts will be self-financing.
After having spent years browbeating the Joint Committee on Taxation into incorporating “dynamic” models that assume tax cuts bring faster economic growth, they ignored reports which found the Republican plan would not produce nearly enough to pay for itself. Instead, as Jim Tankersley reports, they set out to discredit the committee’s findings. The fiscal effects of tax policy is a field of research, like climate science, where the Republican Party has dismissed the academic consensus and instead resided in a fantasy world.
Ten years ago, I wrote a book about how supply-siders took over the Republican Party and made regressive tax-cutting its preeminent goal. Libertarian columnist Megan McArdle called my depiction of the influence of supply-siders “wildly overblown,” insisting, “Most tax cutters today want tax cuts because they think they are good for the economy, not because they think that it will increase tax revenue.” As evidence that supply-side economics had been marginalized within the party, she wrote a scathing review of my book for a conservative publication that casually asserted that of course tax cuts don’t increase revenue.
After her editor told her the review “couldn’t be published because it violated their editorial line on taxation,” McArdle wrote a sheepish item titled, “I take it all back,” conceding that supply-side economics might not be a completely marginal belief on the right.
Events since that time have hardly made supply-side economics look any better. After 2007, the “Bush Boom” that conservatives had been celebrating as proof of the brilliance of their tax-cutting scheme was revealed as a bubble, which collapsed. Then in 2012, they predicted that the expiration of the Bush tax cuts on high incomes would cause the economy to slow, but instead it accelerated. The intellectual case for supply-side economics grows weaker and weaker. Yet the supply-siders control of the party remains as firm as ever.