The Trump tax plan won't pay for itself. Here's why it doesn't matter

  • Top White House economic adviser Gary Cohn says the Trump tax plan will be paid for by economic growth.
  • That may be true in one sense, but it doesn't matter because Washington will keep spending too much anyway.
  • With that in mind, it's better for taxpayers to keep more of their money out of Washington's hands.

Chief White House economic adviser Gary Cohn is making no bones about it. He's promoting the idea that any revenue losses from the Trump/GOP tax plan will be made up for by increased economic growth.

No they won't. And even if they do, it really doesn't matter.

Don't get me wrong. Tax cuts do boost economic growth, create more jobs, and eventually grow tax revenues because more people are employed and paying taxes in the first place. That's what happened when Presidents Warren Harding, John F. Kennedy, and Ronald Reagan, cut taxes, (though technically it was Lyndon Johnson who got Kennedy's cuts passed after JFK's assassination). There was even good tax revenue growth after the tax cuts enacted by President George W. Bush, although they took longer to kick in.

So what's the problem?


Because in Washington, D.C. spending is always the problem. And it rarely seems to matter how much money is actually coming into the treasury. So what does it matter if economic growth pays for potential revenue losses when the politicians are going to keep spending more either way?

This handy dandy chart from the Tax Policy Center lays it all out in the starkest and ugliest terms. Federal spending totals, or outlays, have increased in all but three years since 1970. The federal government has avoided running an annual deficit only four times in that same period.

Taxes go up, taxes go down. Revenues go up, revenues go down. The one general constant is that Washington spending just goes up.

"So when it comes to tax cuts, let's not continue to fool ourselves that a) revenues have anything to do with how much Washington spends and b) that holding off on tax cuts will somehow usher in more fiscal responsibility on Capitol Hill."

So those in favor of the Republican tax cut plan and those opposing it can argue all day and night about its effect on total tax revenues, (and they will). But if the argument is that the deficit and the debt are bad, then no discussion of tax revenues really matters because D.C. spending is likely going to outpace the revenues anyway.

And we're not talking chump change either. Revenues are already at all time highs. The federal government has collected more than $2.96 trillion in total tax revenues through the first 11 months of fiscal 2017... and it's still running a deficit of $673.7 billion dollars for the year. Finding a way to spend more than the avalanche of cash that's coming in is apparently not that hard.

With this in mind, this tax reform battle could be a good place for those few responsible deficit hawks in Washington to stand their ground and refuse to go along with the plan unless they get some spending cuts in return. That slim 52-48 majority in the Senate has already proved to be too slim for GOP comfort in the failed attempts to repeal and replace Obamacare. So, the top Republican senators and representatives who have historically been opponents of runaway Washington spending could hold a lot of leverage in this tax battle. Right?

Not so much.

The leading spending opponents on Capitol Hill for the last several years, the Congressional Freedom Caucus, have already endorsed the tax reform plan with no serious demands attached. And in an interview Wednesday, Senator Ted Cruz threw in the towel completely on cutting spending and insisted that growing revenue is the only way to cut the deficit. He made the strong point that there will never be enough members of Congress with the guts to make real cuts. And he's clearly right about that part. Let's face it, politicians are elected locally and they believe it's their job to bring home the goodies in return. Goodies cost money.

That might leave the spending hawk duties to someone like Senator Rand Paul. But even if he does take on that battle, there's no indication he'd find any more Republicans to join him in opposing the plan like he did in the Obamacare repeal process.

So where does that leave taxpayers like you and me as we watch the national debt exceed the $20 trillion mark that some say is more like $200 trillion? Shouldn't we stand for some kind of fiscal responsibility and oppose any tax cuts or any bill that doesn't cut spending first?

That's a nice idea philosophically, but it seems more practical to take whatever added money that comes into our pockets and just be thankful it's out of Washington's hands. We can do better with that money anyway.

For example, if you're worried that a tax break you and your peers are getting now might bankrupt Social Security when you need it in 20 years, then go ahead and take that extra tax break money and invest it in your 401(K).

If you think federal education funding will suddenly dry up in the future, put aside that tax break money and use it to put your kids into a private school.

Those examples may sound a bit like a stretch, but so is believing that any politician in Washington will ever really get serious about debts and deficits. And it's not just an establishment Washington political party thing. Even President Donald Trump has already proposed lots of spending increases in defense, infrastructure programs, etc.

So when it comes to tax cuts, let's not continue to fool ourselves that a) revenues have anything to do with how much Washington spends and b) that holding off on tax cuts will somehow usher in more fiscal responsibility on Capitol Hill.

A more honest argument from people like Cohn would be to admit that growing or even protecting revenues for the U.S. Treasury are not the priorities in this tax plan. And focusing on whether this specific tax plan will be paid for in our current debt environment is like bickering over how you're going to pay for one fancy dinner during a month-long vacation you can't afford anyway.

No one should believe for a second that any Republican, Democrat, or Trump administration official cares much about debt. What they should believe is that Americans can do better things with their own money and do it more responsibly and effectively than Washington ever could.

This new tax reform plan may or may not pass Congress. But one thing you can take to the bank is that deficits and debts will still grow over time no matter what. In that environment, the only revenues the taxpayers should be worried about are their own.

Commentary by Jake Novak, senior columnist. Follow him on Twitter @jakejakeny.

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