Republicans talk up tax cuts, but mum on budget impact

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[November 12, 2015]  By Andy Sullivan
 
 WASHINGTON (Reuters) - Republican presidential candidates talked up aggressive tax-cut plans on Tuesday night but offered few details about how they would avoid plunging the nation deeper into debt from the multi-trillion-dollar revenue shortfalls that would follow.

The debate in Milwaukee was a mirror image of the Democratic contest, in which candidates Hillary Clinton and Bernie Sanders are proposing costly new federal family leave and college tuition programs without detailed plans on how to pay for them.

Candidates from both parties are avoiding for now a discussion of the tradeoffs that would dramatically change the way the U.S. government raises and spends money.

Frontrunner Donald Trump promises to slash government revenues by one-third over the coming decade, but he also has said he would not cut popular health and retirement programs that account for half of all government spending.

Florida Senator Marco Rubio has called for more military spending and a new tax break for families, while promoting a tax plan that would cut revenues by $6 trillion over a decade, according to the Tax Foundation, a center-right think tank. He declined on Tuesday to say how he would avoid wider deficits.


Kentucky Senator Rand Paul lectured his rival on the debate stage, saying, "You can't be a conservative if you keep promoting new programs you're not going to pay for."

Paul, who has been struggling to gain traction in the race, is one of the few candidates who has laid out detailed spending cuts.

Texas Senator Ted Cruz also said on Tuesday that he would reduce the impact of his proposed tax cuts by closing the Internal Revenue Service and four other government agencies. The IRS has already laid off thousands of agents in the past several years due to budget cuts, which the agency says has hampered its ability to track down tax cheats and left billions of dollars in uncollected taxes.

Shrinking government and cutting taxes have been core Republican principles for decades, and the plans put forward by candidates in the 2016 contest reflect the party's consensus that an overly complex tax code is holding back the economy.

"Each one of those tax plans is better than the mess that we have right now," Trump said of his and his rivals' plans.

BENEFITS FOR RICH

The view that the U.S. tax code is an economic drag is just one of many complaints, along with the stark reality that it fails to raise enough revenue to cover Washington's spending.

Rubio, Trump and former Florida Governor Jeb Bush would lower tax rates and reduce the number of tax brackets from seven to two or three. Texas Senator Ted Cruz and retired neurosurgeon Ben Carson propose a flat tax so rich and poor would pay the same rate.

Democrats Clinton, Sanders and Martin O'Malley have not yet released detailed tax plans.

Nearly all the Republican candidates' tax plans that include enough detail to merit a close look by experts would deliver the biggest benefits to the wealthiest Americans, according to the Tax Foundation.

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All the Republicans' plans would slash government revenues over the coming decade by between $1.7 trillion and $12 trillion. The shortfall would be lessened if economists assume that tax cuts would boost economic growth, but even in those scenarios all except Paul would come up short on revenue, according to the Tax Foundation.

"These will require real cuts in government spending in order to make the math work," said Tax Foundation analyst Kyle Pomerleau.

Federal spending under Democratic President Barack Obama since 2009 has been holding fairly steady between $3.4 trillion and $3.7 trillion while revenues have been rising steadily in step with economic recovery, topping $3 trillion last year.

As a result the federal budget deficit has shrunk to 2.5 percent of GDP in the fiscal year ended Sept. 30, down from 9.8 percent of GDP in fiscal 2009.

Tax cuts do not rank among the highest concerns of Republican voters. According to a March survey by the Pew Research Center, only one-third of Republicans say they are bothered by the amount they pay in taxes. Roughly half want corporations and the wealthy to pay more.

Voters also have shown little enthusiasm for cutting expensive benefit programs such as Medicare and Social Security.

That might not matter for the Republican contenders. Since 2011, Republicans in Congress have backed budgets seeking to overhaul Medicare and deliver tax cuts for the rich, though Obama has blocked this agenda. Over that period, Republicans have won control of the Senate and widened their House of Representatives majority.
 

Any Republican president would likely have support in Congress to deliver the tax cuts promised on the campaign trail, said Steven Rosenthal, an analyst at the centrist Brookings-Urban Institute Tax Policy Center. The question is how they would deal with the fallout on spending and budget deficits.

"It's the proverbial dog chasing the car and catching it: what do I do now?," he said.

(Editing by Kevin Drawbaugh and Tomasz Janowski)

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