If it's a day that ends in "y," Republicans are proposing large cuts in income tax rates that primarily benefit the highest-income families. So it was no surprise to learn Tuesday night that Jeb Bush is proposing big cuts in the top income tax rate and significant reductions in the corporate tax rate.
But any time a big new tax cut comes down the road there is one big question to ask about it: how is it paid for?
Like the tax cuts enacted in the Reagan and Bush administrations, these cuts will come at a financial cost — whether or not they also deliver on the sure-to-be-promised increase in economic growth. Roughly three options exist: the Paul Ryan Model, the Mitt Romney Model, and the George W Bush Model.
1) Pay for tax cuts with big spending cuts
This is the model that made Paul Ryan a political superstar when he took the helm of the House Budget Committee. After years of big deficits under George W. Bush and then bigger deficits under Barack Obama, he offered an agenda of large spending cuts — huge, immediate cuts to Medicaid followed by delayed cuts to Medicare — that would create the budgetary head room for massive tax cutting.
Politically, of course, this is a dicey operation. Higher taxes on the rich are popular enough that even Republicans have mixed feelings about the idea, while plenty of the GOP rank-and-file like their Medicare just fine. This approach does have the virtue, however, of being the most in sync with the official dictates of conservative ideology.
2) Pay for tax cuts with unspecified loophole-closing
This is the model Mitt Romney pioneered in his 2012 campaign, promising to close loopholes and deductions in order to finance a big cut in tax rates. The problem with this is that when serious analysts cracked open their models, that turned out to mean that middle class tax payers would end up paying higher taxes.
Politically speaking, this is just deadly. The success of tax cutting politics depends on building a coalition between rich taxpayers and middle class taxpayers around the idea that everyone likes to pay lower taxes. Financing lower taxes for the rich with higher taxes on the middle class (by, for example, eliminating the home mortgage interest tax deduction) is a nonstarter. Romney attempted to deal with this by refusing to say which deductions he would eliminate, even while being extremely specific about his rate cuts. Declining to own up to the implications of your own proposals is a time-honored political tactic, but it has limited utility in the face of hard numbers.
3) Just borrow the money
George W. Bush financed large tax cuts in 2001 and 2003 by just … not financing them. Democrats lambasted him for increasing the budget deficit, but as Vice President Dick Cheney told then-Treasury Secretary Paul O'Neil "Reagan proved deficits don't matter."
And, indeed, interest rates and inflation stayed subdued during the Bush years. Regressive tax cuts may have been an unwise way to use the government's fiscal capacity at a time of high and rising inequality, but it's very difficult to point to a macroeconomic problem that they caused. Indeed, Bush's devil-may-care attitude toward fiscal prudence let him significantly increase military spending, homeland security spending, and education spending all while tacking an expensive new prescription drug benefit on to Medicare.
This style of Republican governance went out of style immediately upon Barack Obama's inauguration, and it would be awkward to pivot from lambasting Obama's deficits to proposing much-larger deficits. But then again, it would also be awkward for liberals to go back to arguing that big budget deficits are a problem!