Today’s head-scratcher: Why, like the moth to the flame, are Republican candidates so drawn to supply-side tax cuts?

February 23rd, 2016 at 9:21 am

Let me paraphrase that title a bit: why are they so forthcoming about it in the midst of an anti-establishment election?

Read this useful NYT review of the depth of the R candidates tax-cut proposals.

The tax plans of the Republican presidential candidates would cut federal revenues as much as $12 trillion over a decade, a post-World War II record eclipsing the deep tax cuts of George W. Bush, Ronald Reagan and John F. Kennedy. And they would come just as America faces the costs of its aging baby-boom generation.

Tax expert Bill Gale provides an efficient summary of the problems with this:

“One, they are enormous tax cuts relative to anything we’ve done in the past. Two, the candidates don’t specify how they’re going to pay for these tax cuts. And three, they are hugely regressive” — that is, the higher a person’s income, the bigger the tax cuts that taxpayer would receive, both in dollars and as a percentage of income.

If the candidates “ever do get around to specifying how they’re going to pay for the tax cuts,” Mr. Gale added, the budget savings are “going to come from low- and middle-income households” because those Americans benefit more than the rich from the government’s domestic spending programs.

I’ve disparaged the economics of trickle down ad nauseam, most recently, yesterday:

[trickle-down theory is based on] increasing growth by cutting taxes on rich people based on the faith that they’ll create more economic activity (and create it here, not abroad). To put it mildly, that faith is misplaced. You know what happens when you cut taxes on the rich? They get richer.

[See here for more details and citations.]

But I’m not here today to talk economics or fiscal policy. I’m having a bit of trouble wrapping my head around the politics of all this. Consider these points:

–A very similar trickle-down agenda worked badly for Romney/Ryan, allowing the opposition to portray their candidacy as out-of-touch plutocrats, unconcerned about middle-class income stagnation and inequality.

–In this election, it seems particularly obvious that time-worn, establishment-conservative proposals like big tax cuts for the wealthy are out of tune with the Republican primary electorate. A non-trivial core of Republican primary voters appear to be (or worry about becoming) downwardly mobile middle-class people who might not react favorably to zeroing out taxes on investment income, as Marco Rubio proposes.

–Also, in this election, facts and coherent policy positions are not exactly what the conservative primary base appears to be clamoring for.

If I’m roughly right, why would a candidate feel compelled to lay out the type of proposals described in the NYT piece? Even if that’s where you ultimately want to go, why not, especially if you’re the current front-runner, just say, “I’ve got an awesome tax plan that’s gonna work great!”? When they ask you, “what is it?,” you just say “it’s got something for everyone!” which is not completely false as these plans tend to cut federal income taxes for everyone who pays them, though far more for those at the top. (Although, if they really did try to offset the lost revenue with spending cuts, that would likely be at the expense of the least well-off, as Gale suggests.)

And yet, Trump, who claims to want to tax the rich, delivers 35% of the benefits of his proposed cuts to the top 1% (an e.g. of that bit about facts not mattering so much). His plan also loses the most revenue among those that have been scored so far.

One argument I often hear is that “they do this to signal their rich donors that they get it; they understand the real deal and recognize the pay-to-play standard in today’s presidential politics.” Maybe, but I don’t really buy it. Unless their donors are all checked out, they must recognize that the candidate can’t help them if they can’t get elected. And Trump doesn’t need their money anyway.

Perhaps it’s all they’ve got. I’m more prone to believe this.  Jimmy Pethokoukis, who also ponders these questions from the other side of the aisle, reminds us of Robert Novak’s famous line: “God put the Republican Party on earth to cut taxes. If they don’t do that, they have no useful function.” Or, maybe it’s just a dog whistle for starving the Treasury of revenues and reducing the size of government, although that’s not how this sort of thing usually works out (instead, you end up with larger deficits; note that none of the candidates have actually articulated offsetting spending cuts).

But again, you can’t cut taxes if you can’t win. I’m not the political analyst here and you’re within your rights to point out that these trickle-down plans don’t seem to be hurting (or, for that matter, helping) any of the candidates in the primary.

It’s more like they’re just checking a box. And I guess that’s kind of puzzling to me in a year when I think the electorate is less interested in that sort of thing if not downright likely to be pissed off about it.

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13 comments in reply to "Today’s head-scratcher: Why, like the moth to the flame, are Republican candidates so drawn to supply-side tax cuts?"

  1. jonny bakho says:

    The proposals go like this:
    TAX CUTS!!
    The rubes don’t understand economics but they like the promises.

    The GOP promises to cut taxes.
    Their supporters hear, “They will cut my taxes.”
    The GOP delivers big cuts for the rich and crumbs to the struggling middle class.
    The struggling middle class is grateful for the crumbs and even more grateful that their taxes did not increase, which they are told is the Dem policy.
    Many in the GOP believe in the plantation economy.
    Wealthy people have money and they hire the connected for jobs.
    If you cross the plantation owner, you will get neither a job nor their business.

  2. efcdons says:

    The GOP has a crazy vision of the nature of property, where it comes from, how it’s formed, etc. They see property as a “natural” right accruing to the person who “earned” the property. The consequences of this thinking is that taxation for anything other than paying for things to protect private property is illegitimate and bordering on theft. Therefore republicans can’t help but propose tax cuts, especially for the wealthy. Cutting taxes is “just” regardless of the economic or political outcomes because it returns the property to it’s “rightful owner”. Tax cuts for high income people are especially important because those high income people are “suffering” the most from unjust theft of their property by the government. It’s ridiculous, I know. But it is a natural response if one holds the ideas and priors held by the GOP elite.

  3. MikeZ says:

    I suggest you read the article “Who Turned My Blue State Red?” in the NY Times. The reporter visited many areas reliant on safety-net programs and found that while program beneficiaries remain strangely uninvolved in the political process, those a step or two higher on the economic scale resent/disparage those receiving aid and vote strongly Republican. A big part of this comes from the racism fanned by the Republican party, the claim that taxes are mainly going to “those” people.

    So you have lots of people that believe gov’t spending is just wasted, those lazy people would get out there and work if they had to. Tax cuts play right into this belief. Keep in mind only 1/3 or less of US adults have a college degree. Simple arguments play well. If most spending is wasted, and taxes are what funds that spending, then cutting taxes will make them reduce the waste! Talk to many Republican supporters and they’ll clap you on the back and tell you “now you get it” if you say this.

    Discussion of who benefits and by how much, requiring the use of statistics and concepts like marginal tax rate, you might as well be speaking greek. Simple solutions and not-so-subtle appeals to racism are the bedrock of the Republican brand. What sunk Romney isn’t so much his tax policy but that people could clearly see from his history that he was the kind of guy screwing under the blue-collar workers (a big base of Republican support) to benefit himself.

    • Smith says:

      I strongly disagree with the broad characterization of Republicans, conservatives, and blue collar workers. There is to be sure an unhealthy measure by many of disdain and discrimination against blacks and minorities, or anyone who is different. It is true the use of “those” people may encode meaning (and it’s a favorite of Krugman to remind people of that fact). But you are living inside a liberal bubble if you don’t get the fundamental and actually good side of conservative politics. It’s about independence, self-reliance, respect for hard work, distrust of big government, bureaucracy, taxes, politicians, wasteful spending, regulations, and authority in general. Not all conservatives and Republicans are racists, corrupt, or uneducated. Branding them as such, and Trump supporters too, means you are writing off as large a chunk of the American body politic as Romney. Good point about what sunk Romney, and still he got (ironically) 47% of the vote, only 3% short, despite his gaffs. But consider you would have conservatives even if there was zero racism involved. Conservatives would look down upon the poor as deserving their station, a creation of their own cultural norms and mores, absent any racial or ethnic differences. True revolutions have occurred largely over class differences and inequality.

      Yes about marginal tax rates being Greek, which is why Sanders keeps it simple, Higher minimum, free college, single payer, break up the banks. Let’s talk about waste in government. There’s a lot of it. Do I think Obama should have frozen federal salaries? No. Do I think New York and New Jersey need to spend an average $20,000/per pupil per year on public education? No. (yes I know it’s local and includes special needs students). I don’t think the President even should get $400,000 a year. I’d do it for free.

  4. Smith says:

    I’m not getting why Trump wouldn’t enjoy a very successful presidency and buoyant economy, at least according to liberal economists. Both he and Sanders would increase the deficit substantially, which in a underutilized economy would not cause runaway inflation and furthermore would have the potential of aiding our balance of trade. While a lion’s share of tax cuts would go the the wealthy, just as in the Reagan recovery, trickle down growth, especially in the first term as surplus capacity was consumed, would give everyone a hand, lift everyone’s boats. Some years out there might be a hangover from the taxcut party, but it’s hardly a certainty. Sanders promises to pay for his programs, the stimulus comes from spending being front loaded, boosting demand causing a virtuous cycle, and the supposition that taxing the rich to give to the poor aids productivity and demand because the rich sit on their wealth and excess income (think of corporate cash used for buy backs so the rich can invest yet more in the stock market).
    Just as Jaime Galbraith used a few Reagan years as an example of the Friedman analysis of Sanders plan’s potential, it can be a model for Trump. Tax cuts for the rich by Trump, or infrastructure spending by Sanders, aside from crumbling bridges and roads, more gala’s and less barbecues, where’s the big difference?

    • MarvToler says:

      Actually I don’t think Sanders would raise the deficit substantially. He is very willing to raise taxes to pay for his programs. If you read his issues pages you will see that he’s very forthcoming on which taxes he would push.

      • Smith says:

        Nope, you want a healthy amount of deficit Keynesian spending at first which is why Sanders spends on infrastructure the first five years and pays for it over ten years.

    • oli3 says:

      “While a lion’s share of tax cuts would go the the wealthy, just as in the Reagan recovery, trickle down growth, ”

      So you’re advocating MORE trickle down?? Are you kidding?

      No. And not just plain no. HELL, NO.

      • Smith says:

        I’m not advocating, I’m just saying it would work. Your roads and bridges would continue to fall apart, and inequality would grow, and unemployment and underemployment would remain too high, the country would weaken, but it would still chug along. Rome took hundreds of years to fall.

  5. MarvToler says:

    I agree with MikeZ. Many of the Republicans I know really feel that the government takes money from them in order to give it to people who don’t deserve it. Often, there is a racial component to their argument. So from their perspective, all taxes are evil. Any tax reduction is good since it helps the “good hardworking folks keep their own money” and tends to starve government programs. As long as you mention tax cuts or program cuts(except Medicare) you can sell any voodoo economic idea to the Republican base.

  6. Amateur says:

    Here’s my two cents:

    I’m really only puzzled by Trump. It is my belief that he knows the Kochs and Adelson and such would spend billions, outspending Trump to prevent his nomination if he didn’t talk the talk. I know they don’t like him anyway, but this is a game of risk reward, something all businesspeople are skilled at.

    So Trump looks less risky to most billionaire Republicans, just enough to prevent a massive spending spree against him. I don’t actually believe this is the plan Trump wants. I think it is based upon a bluff.

    The rest of the field I think just knows what they have to say to get donations, but perhaps these donations aren’t coming from the most sophistocated of political investors like the Kochs.

  7. Smith says:

    Why isn’t cutting taxes always a winning proposition? Why do you have to ask that question? Nobody pays much attention to actual tax plans, and the nuances that benefit the rich. All they ask is whether I want a government that will raise taxes? Or lower taxes? Other comments have made that point too.
    The real wonder is how anyone promising to raise taxes can get elected. Sanders for example gets traction because he leads with “Tax the rich, the millionaires and billionaires, the corporations with profits in the Cayman Islands, tax Wall Street.” He also promises real benefits for the tax hikes, like free college and universal health care. Says if you earn minimum, your wages are more than doubled ( $7.25 to $15).
    But most people like the fact that their are millionaires and billionaires, they exist, they run corporations, and accept that there are people who are the bosses or are very rich. That is why they accept Donald Trump.
    Again, cutting taxes and raising deficits works, it’s a very inefficient stimulus, that still leaves roads crumbling, and workers powerless.
    The equivalently sized Sanders stimulus according to the Friedman analysis would work too, but measures to restore labor power at the same time has the analysis predicting productivity gains of 3.17% a year. Romer, Romer, DeLong, Krugman, Krueger, Goolsbee, Tyson, may disagree since productivity rose only 1.2% a year 2006 – 2015. This overlooks productivity gains of 2.98% a year the previous ten years 1995 to 2005 Perhaps that’s why Baker, Reich, Picketty, Galbraith, and Stiglitz haven’t piled on. ( the other part of Friedman is labor force participation surpassing 67% level of 1990s to reach near 70%, like top group of OECD e.g. Sweden)

    Most people don’t think their taxes are too low, that government doesn’t waste their money, that we should do away with having rich people.

    But to answer your question, why do Republicans campaign for tax cuts? Because they can, because they pay no price for doing so, because there is no opposition, because the Democrats never campaigned on that in 2010, 2012, 2014. We have 80% of the Bush tax cuts still. Most Democratic politicians are rich and happy to keep their money, and to satisfy the rich top 10% and ruling class that make up their donor list.

  8. Chris Herbert says:

    Since when is taxing the wealthy unpopular? Sanders is a good example that it is not. He says the economic system is ‘rigged’ billionaires have stolen your wages and we need to get some of it back where it belongs–in the pockets of working men and women. The more Democrats repeat that very simple, and accurate in my opinion, narrative the more successful they will become.