At The Core Of Republican Deficit Plan--Do Tax Cuts Work?

Douglas A. McIntyre

The Republicans released their proposed financial plan and it aims to balance America’s budget by 2015. Called “The Path To Prosperity: Restoring America’s Promise”, its success is based as much on tax modifications as anything else. It “Sets top rates for individuals and businesses at 25 percent.”

The programs suggested cutting government spending by $6.2 trillion more than the Obama plans over the next decade, primarily through reforms of the defense budget and restructured systems for Medicare, Medicaid, and Social Security. The document’s comments that the new plan “Ends an onerous, one-size-fits-all approach by converting the federal share of Medicaid spending into a block grant that gives states the flexibility to tailor their Medicaid programs to the specific needs of their residents.” Who will decide what those “special needs” are is left unclear. Without an objective referee, the system will not work. And, there is nothing close to an objective referee in politics.

For the Medicare system, the plan “Protects those in and near retirement from any disruptions and offers future beneficiaries the same kind of health-care options now enjoyed by members of Congress.” In other words, people who are under 50 or so now will not enjoy the safety net of older Americans. It is hard to imagine a fierce debate on the idea will not almost complete wreck the ideal behind it.

As for Social Security, the plan “Forces action by the President and both chambers of Congress to ensure the solvency of this critical program.” That assumes that the President, the House, and the Senate will eventually agree on something which cannot be agreed upon now when the threat to the nation’s financial interests is as serious as it has been in decades.

The expense cuts in the Republican plan will probably not materialize because of the Democratic majority in the senate. But if this were to somehow happen, the debate would then move on to taxes. The Republicans are indirectly making the case that high taxes are regressive and tax relief causes growth in consumer spending, job creation, and increased expenditures by businesses.

There is just as much of a body of evidence that tax reductions are a stimulant as there is that they are not. Economists have debated the problem for decades. The new Republican plan does nothing to provide compromise to settle the back-and-forth debate. It relies on taking one side of the argument and claiming it is the unequivocal truth. In this extremely volatile political arena, it doesn’t seem like it has much chance of making it as a viable ten-year plan.

Douglas A. McIntyre