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The tax law Republicans passed this week increases the deficit by $1.5 trillion inside the 10-year scoring window as assessed by conventional methods. The Joint Committee on Taxation, whose director was appointed by Republicans, was willing to find that on a dynamic basis the deficit increase might be "only" $1 trillion.
And the public debate has generally proceeded by taking the $1.5-1 trillion figures as representing the pessimistic pole of the debate, while Republicans senators insist that the real number is much lower. Erstwhile moderate Susan Collins professes that the tax bill will boost growth so much as to pay for itself, and her colleagues apparently agree.
But it's worth giving serious consideration to the opposite possibility — that revenue loss will be much larger than the JCT estimates.
Some of this comes down to economic modeling issues. Republicans turned against the JCT when it didn't say what they wanted it to say, but the whole JCT dynamic scoring process is something they themselves set up to begin with. And it really does embed GOP-friendly presumptions.
There are other models out there, like the Penn-Wharton Budget Model, that are considerably less enthusiastic about the growth-boosting effect of debt-financed tax cuts. They say the right number for revenue loss is between $1.9 trillion and $2.2 trillion — and between $900 billion and $1.2 trillion more than JCT thinks.
But the bigger question is whether a standard macroeconomic modeling approach can really capture what's going on here at all.
An all-star group of tax lawyers (not economists, it makes a difference) produced this quick and dirty analysis of the bugs, loophoples, and game-able provisions that they believe the legislation creates and that could generate revenue losses far in excess of what's envisioned in standard scores.
JCT, for example, evaluates the new break for pass-through entities largely as simply reducing the amount of tax revenue the government will collect from pass-through entities rather than really kicking the tire on the new pass-through tax shelters we're going to see.
That's not JCT's fault per se. It's not their mandate. Congressional Republicans simply never did the kind of slow, deliberate crafting of legislation that you would need to do to really assess how workable some of these ideas are.
Which raises the larger question: Do they even care at all? If I were undertaking a radical re-write of the tax code, I would also provide the Internal Revenue Service with additional resources to make sure they can enforce it properly.
But does anyone believe the GOP is going to be stepping-up IRS funding? For a realistic view, just consider what's already happening at the IRS. The director stepped down, creating a vacancy. And Trump — breaking with all precedent — named an obscure political appointee from his Treasury Department to take over as acting director rather than letting a career professional do it. And, naturally, he hasn't bothered to nominate anyone to fill the job on a permanent basis, skipping the fuss and mess of congressional hearings.
When Mar-a-Lago members start exploiting potential funny business in the new tax code, do you think Trump's IRS is going to tighten the screws? I don't. And that means we could be looking at revenue loss that's many hundreds of billions of dollars higher than what a pure economic model would tell you.
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