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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Brief Note on the 2001 Tax Cut vs. a 2013 Tax Cut



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Late last month, Sahil Kapur of Talking Points Memo reported that the Romney campaign had pushed back against Kevin Hassett’s suggestion that a Romney administration would sacrifice rate cuts to preserve progressivity and revenue neutrality:

“The governor’s plan calls for a 20% rate cut for all brackets, revenue neutrality, while ensuring that high-income earners continue to pay at least the same share of taxes,” a Romney spokesperson told TPM. “All of these goals are achievable, and the governor will work with Congress to enact tax reform that meets each of the goals he has proposed.”

The statement came in response to remarks this week from campaign adviser Kevin Hassett, who said that if Romney cannot make his math work, he’d set higher tax rates for high income earners instead of raising the burden on the middle class.

“If you think the base-broadeners don’t add up, if you think he can’t get to 28 percent, then the right thing that would happen, as you know, if you’re going to have a revenue-neutral reform, is that they would have a different change in rates,” Hassett said earlier this week.

I was actually impressed by how much wiggle room the Romney spokesperson left for a future Romney administration. Hassett was speaking from experience, having seen how campaign proposals have been translated into policy once Congress has a say. The Romney spokesperson who spoke to Kapur wasn’t speaking from experience. Rather, he chose not to repudiate the Romney campaign’s tax policy goal in late September of an election year. 

To understand the obstacles a Romney White House would face in passing a large tax cut, it is useful to revisit 2001. Back in 2008, Mona Lewandoski, who currently serves on the staff of Sen. Barbara Boxer (D-CA), wrote a very helpful legislative history of the first Bush tax cut that highlights a number of mostly forgotten aspects of the debate, two of which are particularly salient:

(1) Lewandoski, like Charles Blahous, reminds us that in 2001, the CBO was projecting significant budget surpluses over the next decade. Surplus projections were, however, uncertain, and many critics of the proposal argued that it would cost far more than the Bush administration had suggested. In contrast, the CBO now projects that under its alternative fiscal scenario, in which current policies will generally be continued, deficits would average around 5 percent of GDP over the 2014-2022 period.

(2) The Bush administration was forced to scale back its tax cut considerably. As Lewandoski recounts, the CBO and JCT priced the conference agreement at $1.35 trillion, yet President Bush had set the upper bound for his tax cut proposal at $1.6 trillion. And though the president had campaigned on reducing the top marginal tax rates from 39.6 and 36 percent to 33 percent, Congress settled on a cut to 35 percent. There is ample precedent for a newly-elected president to give ground on a top rate reduction. 

There are other differences between 2001 and 2013 that will constrain any effort to reduce taxes, e.g., congressional Democrats seem less favorably predisposed towards backing high-income rate reductions. Republicans narrowly held a Senate majority at the start of 2001, and it seems likely that Democrats will have a narrow Senate majority at the start of 2013. And of course the outcome of the fiscal cliff negotiations will have an enormous impact on what comes next.



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