Republicans Are Trying to Use Accounting Magic to Conceal the Cost of Tax Cuts

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Republican hypocrisy about the deficit is well known to those who pay attention. Despite their railing against deficit spending, the deficit somehow manages to increase every time they’re in charge. When it comes to tax cuts, they typically claim that cuts will pay for themselves with increased economic activity, despite clear and repeated evidence that they typically do not.

Hard pressed to make such claims about extending Trump’s 2017 tax cuts (at least with a straight face), they’re now trying to use a clever accounting trick to pretend that their new tax legislation is costless, when, in fact, it will add about $4.6 trillion to the national debt over the next decade.

Words fail me. Well, not really. Here’s how their latest effort to pull the wool over the public’s eyes works. Each year, Congress is supposed to adopt a budget, then instruct the various committees to reconcile their bills to it. Tax bills are an important part of this process—and any bill offered as part of reconciliation is not subject to filibuster. Thus, anytime a party controls all three branches of government, it can push through tax legislation with only a simple majority.

All major tax legislation since 1986 has been achieved through reconciliation—meaning that it was done by one party, with little if any input from the other party. Because of arcane rules about deficits beyond the budgeting window, many of these tax measures end up being temporary. That’s why the Trump tax cuts from 2017 are expiring this year.

As “luck” would have it, the Republicans control the presidency and both houses of Congress, and they are set to use the reconciliation process again to make the 2017 tax cuts permanent (along with God knows what else—the process is shrouded in secrecy, as it was last time).

However, complete control over Congress and the presidency is not a silver bullet. Tax bills must still conform to the budget Congress adopted and the instructions received as part of the reconciliation process. If a bill costs too much, it can be blocked.

So how do we know how much a tax bill will cost? The Congressional Budget Office and Joint Committee on Taxation score the bill, estimating how much revenue it will bring in. This scoring is more art than science, though history suggests that those charged with the task are pretty good at their jobs. For instance, “dynamic scoring” takes into account taxpayer responses to the proposed changes. This involves guesswork—educated guesswork to be sure, but guesswork nonetheless.

The standard move for the party who wants to push through the tax bill is to “work the refs”—that is, argue that the people scoring the bill under- or overestimated its cost—in the hopes that they will be more favorable to you going forward. A lot of assumptions go into an estimate, and if you noodle with enough of them, you can get a wide range of possible results. This is where the Republican canard “Tax cuts pay for themselves” comes from. If you make enough of the “right” assumptions, you can make it seem as if cutting taxes will bring in more revenue, not less. Never mind that this claim has been thoroughly debunked, time and time again.

You might wonder whether Republicans truly believe that their tax cuts will not increase the deficit. Certainly, some do, but here is where they give the game away. The normal method for evaluating a bill is to use the current-law baseline—that is, to look at how much the current law is bringing in and compare it with how much the proposed bill will bring in. Seems like a reasonable way to determine the cost of proposed legislation!

However, this time, Republicans in the Senate are trying to change the rules of the game in addition to working the refs. They’re now trying to persuade the senate parliamentarian to allow their bill to be evaluated based on a current-policy baseline, which would magically make the tax cuts seem costless. This is where the temporary nature of some of the tax provisions we discussed earlier becomes critically important. Under current law, the 2017 tax cuts expire this year. Thus, tax revenues will go up. If we extend those tax cuts, revenues will go back down. In other words, extending the tax cuts will cost money, increasing the deficit. That’s what the current-law baseline shows.

Current policy is a bit of accounting magic in which we simply pretend that the current laws will continue in effect, even though they are scheduled to expire. If we pretend that the tax cuts are going to continue, then extending them costs nothing! It’s kind of like saying that we went on vacation last year, so if we declare that our policy is to go on vacation every year, next year’s vacation is free.

To state it plainly, Republicans want to pretend that the revenue losses they’re voting for don’t exist, which will allow them to comply with the budget instructions they create as part of the reconciliation process. Ridiculous, you say! Well, you don’t have to believe me. Here’s David Schweikert, a proud member of the Freedom Caucus: “Anyone that says ‘current policy baseline’ is engaging in intellectual and economic fraud.” According to a nonpartisan report he requested from the Congressional Budget Office, extending the tax cuts would add 30 percent to the deficit over the next 30 years.

Worried that the parliamentarian might rule against them (and with good cause), John Thune, the Senate majority leader, has backed the idea that Lindsey Graham, the chair of the Senate Budget Committee, can unilaterally decide what baseline to use. Put simply, this would place the Republicans in the position of petitioner and judge in their own case.

Time was when the Republicans put themselves forward as fiscal conservatives, railing against the tax-and-spend Democrats. Yet, as noted before, deficits and the national debt increased dramatically whenever they controlled the levers of power.

Unable to claim that these tax cuts will pay for themselves, they are now resorting to accounting tricks and technical jargon like current policy in the hope that we’re too dumb or distracted to notice what’s going on. All this so that they can continue to pretend they care about the deficit, when in fact they are gearing up to increase it dramatically … again.