House Conservatives Demand That Tax Reform Add to the Deficit

House Freedom Caucus chair Mark Meadows. Photo: Nicholas Kamm/AFP/Getty Images

The House Freedom Caucus believes that the national debt poses such a profound threat to our grandchildren’s prosperity, true conservatives must threaten to sabotage the economy unless Congress agrees to pass draconian spending cuts.

They also believe that the corporate tax rate should be cut from 35 percent to 16 percent — and that true conservatives must resist any attempt to offset the (roughly) $2 trillion revenue loss that this would generate by closing loopholes in the tax code.

On Wednesday night, Axios’s Jonathan Swan reported that the 35 Über-reactionary House members are preparing to release their own tax plan, much to the chagrin of their party’s leadership. The exact details of that plan have yet to be hammered out, but Swan’s sources outline its core features:

•Slashes the corporate tax rate from 35% to 16%.

•Doubles the standard deduction for individuals.

•Abandons “revenue neutrality,” the dogma that tax reform mustn’t worsen currently projected deficits.

It’s worth noting that even Republicans who endorse “revenue neutrality” generally use “dynamic scoring” to get there — which is to say, they presume that tax cuts for the rich are partially offset by generating higher economic growth. The Freedom Caucus position isn’t that giant tax cuts don’t add to the deficit, but that growing the deficit is perfectly fine, so long as the national “credit card” is being used to redistribute wealth to the rich, and not to the poor.

To be fair, the conservatives will, ostensibly, call for offsetting the cost of their tax cuts by soaking the latter. Members of the Freedom Caucus have, historically, reconciled the tension between their deficit-hawkery and support for giant tax cuts by insisting on commensurate reductions in social spending. And according to Swan, their proposal will include “some form of ‘welfare reform.’”

But conservatives have consistently failed to pass “welfare reforms” draconian enough to close the current deficit. The fact that they are willing to grow that deficit by more than $2 trillion over ten years, amid decades of evidence that their movement lacks both the influence necessary to roll back Social Security and Medicare and the will to cut defense spending — suggests that these tea-partyers don’t actually believe that the debt poses a catastrophic threat to their progeny, or else they love income inequality more than their grandkids. One could argue that these conservatives believe cutting taxes actually helps reduce the deficit in the long term, because “starving the beast” is the only politically feasible way of rolling back entitlement spending. But we now have decades of evidence to suggest this isn’t the case — the Bush and Reagan tax cuts did not produce an outpouring of popular support for cutting Social Security. In fact, cutting taxes actually seems to increase public support for the social safety net, since doing so makes government programs seem like a better deal. So, the cause for doubting the sincerity of the Freedom Caucus’s deficit scaremongering remains the same: They are blithe about increasing the national debt through tax cuts, even though they have no basis for thinking that they can subsequently offset lost revenue through massive cuts in social spending.

The only alternative explanation is that they know none of their proposals have any chance of becoming law, and all their legislative endeavors are merely theatrical productions performed for the benefit of Breitbart’s readership.

That’s how the Republican leadership seems to understand the party’s far-right faction, anyway.

“It appears that the whole plan is another example of the Freedom Caucus setting unachievable goals that they know leadership can’t deliver rather than trying to make law,” one Republican aligned with Paul Ryan told Axios. “It makes me wonder why these guys run for Congress if they don’t want to get things done.”

The Freedom Caucus proposal does seem designed to embarrass the congressional leadership, which has conspicuously failed to produce an official tax-reform plan, after eight months of trying. But in some respects, the hard-liners’ vision for tax cuts is actually more realistic than Ryan & Co.’s.

Specifically, Republican leadership is still reportedly entertaining the notion that it has the legislative chops to offset rate cuts by closing loopholes that are fiercely guarded by well-heeled special interests. The GOP has a razor-thin Senate majority, a historically unpopular (and incompetent) president, and priorities for tax reform that are shared by virtually no one who doesn’t work in a C-suite or donate to the Club for Growth. The idea that they will be able to pass new taxes on 401(k) contributions, limit the mortgage-interest deduction, or even eliminate the state and local tax deduction that favors blue states is (almost certainly) a fantasy.

The Freedom Caucus plan acknowledges this reality, and proposes a genuinely viable solution. The main reason Republicans have considered closing loopholes is that they want their tax cuts to be permanent. And since they’re planning to pass those cuts through budget reconciliation — a special process that allows bills to pass the Senate with 51 votes, so long as said legislation doesn’t add to the deficit ten years after they’re passed — their tax plan needs to be deficit neutral, or else it will need to expire after a decade.

But, as the Freedom Caucus reportedly notes in its tax plan, Republicans can change the rules of budget reconciliation with a simple majority. Which is to say: Instead of abiding by the rule that reconciliation bills must not add to the deficit after 10 years, they can change it, so that such bills only need to be deficit neutral after 30 years. In truth, no legislation is ever really permanent, since the opposition party can always, technically, roll it back. A tax cut that has an expiration date three decades in the future is about as “permanent” as one that has no expiration date at all.

The Freedom Caucus’s proposed tax rates are obviously unrealistic. But for the Republican Establishment, they do have the salutary effect of framing the leadership’s proposed cuts as “moderate.” And the far-right’s solution to the budget problem seems as tactically sound as any put forward by the party’s realists. The ten-year rule is already an arbitrary one, after all.

The House GOP’s ideological purists may have an intellectually incoherent ideology. They may care more about swelling the posttax incomes of the rich than they do about containing the deficit or defending congressional norms. But the same can be said about the Republican leadership, only to a lesser degree. Therefore, it wouldn’t be surprising if the party’s official tax plan ends up resembling a less ambitious version of the one the Freedom Caucus is cooking up.

House Conservatives: Tax Reform Must Add to the Deficit