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GOP tax bill remains hazardous for deficit hawks

  • As they search for ways to join the Republican tax cut push, self-styled "deficit hawk" senators have raised questions that appear to make no sense.
  • To assuage deficit hawks' doubts, they want a deficit "trigger" in the tax cut bill. Such a provision would force tax increases if deficits later prove higher than expected.

As they search for ways to join the Republican tax cut push, self-styled "deficit hawk" senators have raised questions that appear to make no sense.

Sen. Bob Corker of Tennessee, for example, vows to oppose any bill that increases the deficit by even a penny. Yet the budget framework for tax cuts that he helped design expressly permits $1.5 trillion in higher deficits over the next 10 years.

In other words, Corker's tax cut demand seems to directly contradict his budget outline.

What gives?

A lot, actually.

Corker insists a tax cut that seems to expand the deficit by $1.5 trillion under budget rules may not, in the real world, expand the deficit at all. He cites two different reasons stemming from how deficits are measured and forecast.

The first involves roughly $500 billion in temporary tax cuts that are set to expire but that Congress usually extends. Budget rules assume they expire — as they do under current law. That, in turn, increases the amount of projected revenue and reduces the amount of projected deficits by $500 billion before tax cuts are taken into account.

Republicans assume instead that those provisions would be extended – as under current policy. That reduces expected revenue and increases projected deficits in the absence of tax cuts.

Using that assumption, Corker and other Republicans insist one-third of the $1.5 trillion tax cut is already baked into the government's books.

The second reason concerns projections for economic growth. The budget framework measures $1 trillion in revenue lost from tax cuts on a "static" basis. Static estimates don't attempt to calculate whether tax cuts generate additional economic growth and revenues.

Republicans leaders prefer "dynamic" estimates reflecting the effects of growth. In the current debate, they insist that GOP tax cut plans will generate at least $1 trillion in additional revenues.

Those two assumptions – that $500 billion of higher deficits is already booked, and that tax cuts generate $1 trillion in extra revenue – are how Republicans claim a $1.5 trillion tax cut under budget rules won't increase the deficit at all.

But that's only in theory. Favorable assumptions haven't resolved the deficit drama. Corker and other Republicans such as Sen. James Lankford of Oklahoma remain unconvinced the tax cut bill will indeed generate the $1 trillion in revenue they need.

To assuage their doubts, they want a deficit "trigger" in the tax cut bill. Such a provision would force tax increases if deficits later prove higher than expected.

It's unclear whether and how such a trigger would work. But the deficit hawks have good reason to fear they will need one.

The University of Pennsylvania's Penn Wharton budget model, overseen by a former economist for President George W. Bush, projects new revenue from the Senate's tax cuts in the range of $117 billion to $368 billion. That's not even close to enough to keep the deficit from rising.

Similarly, 88 percent of top economists surveyed by the University of Chicago project substantially higher deficits and debt from the House and Senate GOP bills. Only the Tax Foundation — an outlier among economists for the aggressiveness of its dynamic scoring methods — has projected a 10-year revenue increase of at least $1 trillion from the Senate bill.

Broadly shared expectations of higher deficits help explain why Republicans aren't waiting for analyses by professional career economists within the government.

The Treasury Department has not released its own forecast. Senate leaders aim to pass their bill this week even though the Joint Committee on Taxation, the official scorekeeper of Congress, hasn't completed its "dynamic" growth estimates for the bill.

But senators may receive those estimates whether they want them or not. In a letter Tuesday to Democratic Sen. Ron Wyden of Oregon, the Joint Committee's top staffer said his colleagues were racing to produce them as early as Wednesday evening.

WATCH: Corker says some efforts at tax reform ridiculous