Republicans want to cut taxes by $1.5 trillion — while the government already is running a deficit — and they propose to offset those cuts with wishful thinking.
In control of both houses of Congress with a nominally Republican president in the White House, they are pursuing the dead opposite of the immigration policy touted by Donald Trump on the campaign trail, and considering something close to the opposite of their longstanding promises on health care. They are embarrassed by their inability to execute any proposal of great consequence, and have retreated into that great Republican safe space: tax cuts, the more irresponsible the better.
Congressional Republicans argue that they can in good conscience pass these tax cuts without any corresponding spending cuts or other countervailing measures on the theory that the tax cuts will produce economic growth, and that this economic growth will be so substantial that it will entirely offset the revenue theoretically lost to the tax cuts. There is very little evidence to support this theory, but Republicans remain fond of it.
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Taxes are not especially high just at the moment. Federal revenue amounted to 17.6 percent of GDP in 2016; by way of comparison, consider that in the balanced-budget year of 2000, federal revenue was 19.7 percent of GDP — and 2.1 percentage points is a heck of a lot in an economy the size of ours
Taxes were 18.7 percent of GDP in 1981, when the Reagan tax cuts were passed. The free-lunch theory of taxation holds that strategic, pro-growth tax cuts allow the government to increase its revenue by taking a smaller share of a larger GDP. But that isn't what happened after the Reagan tax cuts: In constant dollars, federal revenue shrank, and by 1983 revenue was in real terms $153 billion lower than it had been. There was a recession, and revenue in constant dollars declined along with revenue as a share of GDP. It would not make sense to blame the tax cuts for that recession — nor would it make sense to credit them for all the growth that came after. By the end of the Reagan years, tax revenue as a share of GDP was right back around where it was at the end of the Carter years — and right about where it is now. The deficit as a share of GDP doubled between 1981 and 1985, then declined — and began to climb again in 1990. As usual, the main variable was spending.
In economic terms, there are two things going on with those revenue and deficit numbers. One is the structural issue, i.e., tax policy, spending, etc. The other is the cyclical issue, i.e., the ups and down in the economy. Both structural and cyclical factors have an effect on growth, revenue, and deficits — and they both have an effect on each other, too. Disaggregating those is a complicated business, one that does not necessarily provide any clear answers. But if you want to stick with the naïve supply-siders' story, then you have to credit essentially all of the economic growth following their favorite tax cuts (Reagan's in the 1980s, Kennedy's in the 1960s) to tax policy in order to arrive at the conclusion that these tax cuts not only paid for themselves but actually added to federal revenue. Given the fact that the economy is growing right now, that is not a very plausible story.