Congressional Republicans have spent years dismissing official budget calculations of their tax cuts because the calculations failed to incorporate “dynamic scoring,” which would find all kinds of wondrous growth effects. Accordingly, they directed budget scorekeepers to undertake “dynamic scoring” of tax cuts, and a report dutifully concluded that, even under these generous assumptions, the Republican plan would still increase the deficit by a trillion dollars.
Their response is that the dynamic calculation isn’t dynamic enough. “We happen to think the assumptions used by the Joint Committee are not accurate,” said Senator John Thune. Indeed, Republicans apparently believe that the tax cuts will pay for themselves, and no facts or figures can dissuade them.
Conservatives deem the Congressional Budget Office unduly pessimistic. “CBO’s roughly $43 trillion revenue estimate also depends on a projection of average economic growth of 1.9% a year,” argues The Wall Street Journal editorial page, the high priests of the cult of voodoo economics, “But the U.S. economy has never grown that slowly for so long … An average growth rate of even 2.4% over the decade would more than fill the hole.”
An average growth rate of 2.4 percent a year doesn’t sound that hard, since the economy is exceeding that rate right now. But what this misses is that the official budget forecasts don’t account for recessions. That’s by design, of course — there’s no way to tell when a recession will hit. We know it will happen eventually, and revenue will drop when it does. The average incorporates the recession years along with the growth years. (And with the baby-boomers, the largest generation cohort in the workforce, retiring in large numbers, the CBO expects growth to continue to rise at a more modest pace than it did during the years when they were entering the workforce.) During expansions, revenues grow faster than forecast, and during recessions, they grow slower. The official forecasts use an average.
This sounds like an extremely simple insight. Yet for decades it has eluded the Republican Party’s finest fiscal minds. They deemed the Reagan tax cuts to be a growth miracle by starting at the trough of a recession, in 1982, and measuring through the peak of the expansion, in 1990. The 1980s expansion was actually an unremarkable business cycle recovery, but by measuring from the trough to the peak, conservative propaganda transformed it into a miracle.
The Reagan “lesson,” that even small changes in marginal tax rates have massive effects on economic growth, has dominated conservative thinking ever since. It informed their hysterical certainty that Bill Clinton’s tax hikes on the rich would destroy the economy. It likewise informed their belief that the Bush tax cuts would bring a return to prosperity. The failure of these things to occur — not to mention other failures, like the collapse of the supply-side experiment in Kansas — has not even slightly dented their faith.
It might seem completely obvious that the Bush tax cuts did not produce a more prosperous economy than Americans suffered during the high-tax Clinton years. But it is not obvious to conservatives. Instead they deemed them a success. Their method was to count the effects on the economy from 2003 to 2007 — while the economy was growing — and to ignore what happened after. (Spoiler: a gigantic recession.)
Here is a 2001 Journal editorial insisting the Bush tax cuts did too cause revenue to grow: “After the Bush investment tax cuts of 2003, tax revenues were $786 billion higher in 2007 ($2.568 trillion) than they were in 2003 ($1.782 trillion), the biggest four-year increase in U.S. history. So as flawed as it is, the current tax code with a top personal income tax rate of 35% is clearly capable of generating big revenue gains.”
The expansion under Bush was in fact extremely mediocre — much weaker than the expansion under Clinton, which had supposedly labored under the weight of punishing tax rates on job creators. It’s true that while the economy was growing, revenues increased. The Journal attributes this normal and inevitable dynamic to the tax cuts. But then revenues collapsed during the recession. This means the tax cuts worked, if you credit the tax cuts for all the good things that happened to the economy while absolving it of all the bad things.
An article from Economics21, another Republican outfit, makes the same argument. The Bush tax cuts were responsible for the economy until 2007, and then suddenly stopped being responsible: “Unfortunately, the 2003-2006 economic turnaround is largely forgotten because it was followed in late 2007 by an unrelated housing collapse and recession brought on by failed Federal Reserve, financial, and housing policies,” it argues. “The tax cuts had nothing to do with the crash.”
A short while ago, the dissident conservative writer James Pethokoukis, a critic of the Trump tax cuts, asked, “What are the metrics that GOPers believe will show that biz tax cuts ‘worked?’”
It was a mischievous request, as Pethokoukis well understood. There are no metrics. If the economy is growing, revenues will rise, and Republicans will credit the Trump tax cuts. Whenever the economy stops growing, they will not count it against the Trump tax cuts. The Republican budget-forecasting model is not much more than: heads they win, tails you lose.