JFK-Reagan approach would fix economy
“Drain the swamp.” It was one of President Donald Trump’s most powerful messages on the way to victory. Shake up Washington, D.C. Break a few eggs to create a new omelet. Overturn the establishment.
Hats off to Senate Majority Leader Mitch McConnell for doing some swamp draining when he exercised the “nuclear option” to overturn the filibuster for a Supreme Court justice confirmation.
McConnell busted an old 19th-century rule, which was never in the constitution, and cleared the path for the confirmation of Judge Neil Gorsuch — who’s as good a candidate as can be found.
Good for McConnell.
But let’s shift our swamp draining focus to fiscal policy. Back in 1974, in the aftermath of Watergate, it was established that House and Senate budget committees would come together to pass a bill with something called “reconciliation instructions.”
In this way, they would move a product through the committees that would only require 51 votes in the Senate to pass.
The process was allegedly designed to promote fiscal sanity, such as curbing the nation’s appetite for debt. Well, that didn’t work. Federal debt in public hands was about 23 percent of gross domestic product back in the mid-1970s. Today, it’s about 77 percent of national income. Not much discipline there.
In recent years, this static modeling has led to the notion that tax cuts need a “pay-for.” If you don’t cut the budget enough, you don’t get your tax cut.
Almost weirdly, the scorekeepers are happy with tax hikes, allegedly to balance the budget. But tax hikes depress economic growth, which reduces GDP. And with a smaller income base, actual revenues decline simply because most everybody is worse off.
In truth, the best way to balance the budget is to reduce tax rates and provide new incentives for faster growth, which then expands the income base and throws off more revenues.
Twenty years later, Republican Ronald Reagan duplicated the JFK tax cuts to liberate a stagflationary economy. Today, the JFK-Reagan approach would rescue a stagnant economy.
But the scorekeepers stand in the way. They’re part of the swamp. They’re telling President Trump you cannot lower tax rates without pay-fors.
So I’d say it’s time for a “tactical nuclear option inside reconciliation,” as playfully put by Wall Street Journal reporter Richard Rubin. Throw out the static models and replace them with dynamic scoring that recognizes the positive impact of lower tax-rate incentives on growth.
How about a 3 percent growth rate over the next 10 years? It’s still below America’s long-run average. But if you slash tax rates, particularly on large and small business, it is reasonable to assume more investment, new companies, profits, productivity, wages and job creation.
Get this: According to former Senate budget expert Mike Solon, an economy growing at 3.1 percent per year would generate $4.5 trillion more revenues than an economy growing at 1.8 percent. Now that’s a pay-for.
Growth is the best pay-for.
Turns out, under the rules of reconciliation, dynamic growth estimates are perfectly legal. Don’t even have to blow up a filibuster.
And Dan Clifton of Strategas Research Partners points out that the Senate parliamentarian says it’s fine to use dynamic estimates. Why has Congress been using static forecasts all these years? They’re nothing more than a bizarre tradition.
So if Sen. Mike Enzi, chairman of the Senate Budget Committee, decides to use dynamic scoring, the Trump tax-cut proposals will sail through.
Reconciliation can be whatever you want it to be. It just takes a bit of bravery to buck tradition and drain the static-thinking economic swamp.
Give wage earners and the entire economy the rocket boost they so badly need.