Stephen Mnuchin wants you to trust him. He wants you to trust him for $6 trillion dollars.
The Tax Policy Center, working with the University of Pennsylvania, estimated that Trump’s proposed tax cuts would reduce revenue by $6.2 trillion over 10 years. The researchers said Trump's proposed plan would initially lead to more economic growth but the resulting growth in government debt — driven by falling revenue levels - would eventually hurt economic growth.
But Mnuchin says there’s no reason to worry about the giant hole this unpresidented gift to the 0.01 percent would blast in the budget.
“The plan will pay for itself with growth,” Mnuchin said at an event hosted by the Institute of International Finance.
Republicans have been selling the “tax cuts generate greater revenue” scheme since at least the dawn of Reagan. The problem is that it’s not true. It wasn’t true then, it’s not been true at any point in between, it’s not true now. This is a tested and disproven piece of economic whackdoodlery that even pre-Reagan Republicans recognized as “voodoo.” But over the last four decades it’s not just become a part of their economic policy, it’s become their economic policy.
In the case of the Trump tax plan, even the most conservative economic organizations—people who live their lives pretending the Laffer Curve has value—can’t find a way to make Mnuchin’s numbers work.
The conservative-leaning Tax Foundation had a rosier outlook, but also predicted the plan would increase the deficit despite the benefits of a stronger economy. The foundation projected the Trump tax plan would lead to a loss of revenue of $2.6 trillion to $3.9 trillion after accounting for increased economic growth.
There’s a reason why Republicans are desperate to pretend that the Trump plan is revenue neutral. If it increases the deficit, then it can’t pass on a straight party-line vote. And unlike Republicans, Democrats are not likely to vote for a plan that rewards billionaires while drowning the government in debt and driving the economy to its knees.
To pass a tax plan along party lines, they have to ensure that it won’t grow the deficit beyond the first 10 years. That requires them to find new revenue to offset what they will lose by cutting rates.
The “tax cuts raise revenues” experiment has been performed many times, both at the state and federal level. And the results have been decisive.
It was only two months ago that Governor Sam Brownback was offering up the steep tax cuts he enacted in Kansas as a model for President Trump to follow. Yet by the time Republicans in Congress get around to tax reform, Brownback’s fiscal plan could be history—and it’ll be his own party that kills it.
The reason is simple: Brownback cut taxes, sharply, and revenues went down. Sharply. Down so much that, despite steep cuts in state services and raising costs of tuition and other fees, Kansas is in a deficit death spiral.
Though he won reelection in 2014, the governor has presided over one budget mess after another since then, and all but his staunchest conservative allies have blamed the crisis on reductions in personal tax rates and a provision that exempted 330,000 owners of small businesses from paying income taxes. Brownback has resisted efforts to undo the policies, preferring instead to raise taxes on tobacco, fuel, and other consumer goods. His relationship with Republicans in the legislature deteriorated, and in primary and general elections last year, a wave of Democrats and centrist Republicans defeated many of the conservatives who had stood by him.
While it might be comforting to think that Republicans might abandon Trump in the wake of an economic disaster created by his tax policies, there are two things to note: Conservative Republicans are still locked in a suicide pact with Brownback even as Kansas sinks and Brownback himself still managed to eek out reelection. Besides, blowing up the country to generate political advantage is a Republican tactic.
Still …
The backlash against Brownback is extending far beyond tax policy. The Kansas House this week passed bills to restore teacher tenure and expand Medicaid, and it blocked an amendment to deprive state funds to Planned Parenthood—a longtime target of the governor and other conservatives.
Let’s see if we can get the backlash, but skip the blowup.