Trampled in GOP

Deficit hawks trampled in GOP tax cut stampede

But Republicans are still squabbling over the rising red ink, potentially jeopardizing Trump’s tax plan.

By RACHAEL BADE and BURGESS EVERETT

Republicans’ unified control of Washington is triggering an identity crisis within the party over what it means to be a fiscal conservative in the age of Donald Trump: Do deficits even matter, or do tax cuts trump all?

If the White House and GOP lawmakers can’t come to terms on the matter soon, it could very well doom Trump’s cherished tax reform initiative.

Conservatives have long railed against the nation’s now-$20 trillion debt. But now that they’re desperate to pass a tax bill, many Republicans’ repulsion to red ink is fading fast. Yet some deficit hard-liners are holding the line, insisting that tax cuts be paid for, either by axing deductions or with stiff spending cuts.

The debate is causing some hard feelings within the GOP.

Sen. Bob Corker (R-Tenn.) recently questioned the deficit cred of one of the House’s proudest fiscal hawks before he left to become Trump’s budget chief, Mick Mulvaney. In his new gig, Mulvaney is now insisting it’s okay to increase the deficit with tax cuts, because an expanding economy will eventually pay the bill.

“Our OMB guy, I say this with humor, what happened to him?” Corker said in an interview. “Do you understand what I’m saying? He used to be the fiscal hawk.”

Mulvaney responded in kind during an interview last week, accusing Corker of “ignoring reality.”

“Macroeconomic changes will always lead to change in the larger economy, okay?” he said. “You raise a tax, it has impact. You lower tax, it has impact. It just does.”

The debate highlights conflicting schools of thought over tax cuts in the party of Reagan, which could have dire consequences, particularly in the narrowly divided Senate.

Republicans say they want less debt but at the same time love a good tax cut — and are desperate to finally notch a major legislative achievement. Most Republicans are coming down on the side of tax cuts, preaching supply-side theories that tax cuts need not be paid for because they will grow the economy and eventually pay for themselves.

“In order to make good on our campaign tax promise, there probably are going to be some sacrifices made from an ideological perspective,” said senior House Budget Committee member Steve Womack (R-Ark.), a longtime deficit hawk.

“I believe that the biggest remedy for our fiscal situation is growth in the economy,” he added. “I am not averse to some deficit spending in order to create long-term sustained growth.”

Most economists say it's unlikely that a multi-trillion-dollar tax package will pay for itself with sustained, long-term growth. That however hasn’t stopped Republicans from predicting that cutting taxes will increase the GDP by a full percentage point for several years and wash away deficit concerns with new revenue.

The crux of the debate centers on “static” scores from budget-crunchers that do not account for new growth, and “dynamic” scores that predict new revenues will be produced by tax cuts.

In today’s GOP, “dynamic” is in and “static” is out.

“The scoring mechanism, again, is crazy,” said Sen Ron Johnson (R-Wis.). “Just agree we’re going to lose money on a static scoring basis. I’m happy to live with a $2-3 trillion static loss.”

Corker has been the loudest critic of this thinking, warning about a “party-like” atmosphere in the GOP, especially now that Barack Obama is out of the White House. But he’s being joined by others: Sen. Todd Young (R-Ind.) told the Indiana Business Journal that “we can’t assume unreasonable rates of economic growth or we’re being fiscally irresponsible."

Corker's group, however, appears to be small party. While Republicans earlier this year set out to rewrite the tax code without blowing a hole in the national budget, most Hill Republicans, from GOP leaders to conservatives have started to side with Mulvaney, acknowledging that they’ll grow the deficit for a time with the tax package.

“I believe Corker is going to get to the place where I am: If you do the models and look at this right, it pays for itself," said Sen. David Perdue (R-Ga.).

"I think Sen. Corker will do great in the private sector as he learns a little bit more about economics," quipped House conservative Scott Perry (R-Pa.) when asked about Corker's resistance to dynamic scoring — though Corker became wealthy as a real estate developer before he became a politician.

Freedom Caucus leader Mark Meadows (R-N.C.) argued that revenue-neutral tax reform — which ensures tax cuts are paid for by reducing tax loopholes elsewhere — is “just moving money around” and “doesn’t do anything for the economy.”

Meadows also predicted Republicans will never have the nerve to cut spending, so they have to pass steep tax cuts to spur growth: “What you have to do is you have to mitigate the damage by being as aggressive as you can be on tax rates, which would lessen the damage of our lack of fiscal responsibility over time.”

People like Corker, however, say the idea that tax cuts will automatically pay for themselves is irresponsible — particularly because many economists have thrown cold water on that very notion. He’s willing to accept some assumptions of economic growth because of tax reform, but says if in his “heart” he feels those assumptions are unrealistic, he’ll vote “no.”

“I’m now nervous about where this goes. I hope that in the end if it’s a big deficit creator, then our caucus will not support it,” Corker said.

In theory, dozens of Republicans in Congress agree with Corker. In separate interviews, pragmatists Reps. Tom Cole (R-Okla.), Adrian Smith (R-Neb.) and Charlie Dent (R-Pa.) all said they’d prefer to do revenue-neutral tax reform.

Cole said counting on supply-side growth without any pay-fors is “a little rosy” and Smith said paying for tax cuts would be best “because I think that’s how we get the longest policy possible.” (If provisions in the bill grow the deficit after a decade, they would likely expire under Senate budget rules.)

All three, however, signaled their wiliness to vote for a tax package that adds to the deficit if the choice was that or nothing.

“I prefer it to be revenue-neutral, but I also understand the complexity of it,” Dent said. Still, he seemed a little uncomfortable relying on dynamic scoring: “I don’t want to be overly optimistic about how much growth will be generated.”

There’s also a third, smaller group of Republicans who are pushing for tax cuts to be paid for by spending cuts. The Senate’s budget calls for trillions in spending reductions, but there is no enforcement mechanism for it.

The loudest member of that group is Sen. Rand Paul (R-Ky.), who Republicans are worried will vote against whatever tax bill they produce.

“I’m a huge deficit hawk. My opinion has always been that you pay for a tax cut with spending cuts,” Paul fumed. “And everybody else up here thinks you should pay for a tax cut by increasing somebody else’s taxes.”

Many conservatives, including Mulvaney, applaud the Paul idea but don’t think it’s realistic given the reluctance of Republicans to go to the mat on fiscal issues these days. They’ve raised the debt ceiling without cuts and spent billions on disaster aid without paying for it.

That’s why it’s important to cut taxes, Mulvaney argued, because growing the economy is the best shot they have.

“They simply do not have the political will on the Hill to solve this through the spending side of the equation,” he said. “So we have to move to the revenue side.”