House Speaker Paul Ryan has spent much of his political career warning against the pitfalls of deficit spending and government debt.
But that argument has been bent in service to another long-held priority, one that has political urgency for Republicans trying to hang on to their congressional majorities: tax cuts.
The tax overhaul legislation that Ryan shepherded through the House—the Senate takes up its version this week—would add at least $1 trillion to budget deficits over the next decade, even when accounting for economic growth, according to independent tax analysts. Ryan’s willingness to look past that, and his ability to successfully persuade his members that these analyses are flawed, shows how important the tax measure has become to Republicans.
“There is no question that there is sincere concern about the deficit, and I have been a deficit hawk,” Arizona Representative Trent Franks said. “The case they have made of economic resurgence and growth being critical to anything else we do that is positive has resonated, and it has overcome any other reticence.”
If they can’t pass tax cuts after their failure to repeal Obamacare and advance other key parts of their agenda, party leaders warn that numerous Republican lawmakers could be swept out of office in 2018 when every House seat is up for election. Similar forces are at play in the Senate, which is set to vote on its version of a tax overhaul as early as Nov. 30.
Franks said a subtext of every discussion about the legislation “is the absolute political fatality this would mean to us if the tax bill fails completely.”
When he was chairman of the Budget Committee and as head of the tax-writing Ways and Means panel, Ryan, 47, often said the “crushing burden of debt” threatens U.S. prosperity and economic growth. Yet in recent weeks, Ryan, of Wisconsin, has been arguing to rank-and-file lawmakers the risk of a ballooning deficit will be mitigated by a blossoming economy.
This isn’t how Ryan planned to proceed. To pay for deep cuts to the corporate rate championed by President Donald Trump, Ryan had originally sought a border-adjusted tax that would have effectively placed a levy on imports estimated to raise more than $1 trillion. That plan was shelved in July amid opposition from Trump, some GOP lawmakers as well as retailers and import-heavy industries.
Once the tax plan was negotiated in the Ways and Means Committee, Ryan proceeded to a House vote without having an official study from the Joint Committee on Taxation or the Congressional Budget Office of the bill’s larger impact on the economy—that is, the dynamic scoring that he and others say will show that their tax cuts pay for themselves. The CBO on Sunday released an analysis that estimated the House and Senate plans would add $1.4 trillion to the federal budget deficit over a decade, but said there hasn’t been enough time to fully analyze the likely impact on economic growth or employment.
The Tax Foundation, a conservative-leaning policy group, says the House bill would cost $1.98 trillion over a decade on a static basis, but generate $908 billion in revenue on a dynamic basis. So the total cost would be about $1.1 trillion, under the group’s analysis.
The U.S. Chamber of Commerce and many conservative groups, including Heritage Action for America and Club For Growth, urged lawmakers to vote for this legislation anyway. But an analysis from the Peter G. Peterson Foundation, a non-partisan group that says it seeks long-term government fiscal solutions, warn that future generations will be saddled with a larger federal debt.
“This tax legislation is increasingly irresponsible from a fiscal standpoint,” said Michael Peterson, head of the Peterson Foundation. “The House and Senate have added budgetary gimmicks that hide the true cost of the bill and diminish its effectiveness in growing the economy.”
During President Barack Obama’s two terms in office, Republicans routinely criticized him over federal spending, the deficit and an increase in total federal debt that has grown to $21 trillion. The annual budget deficit exploded to $1.4 trillion in 2009, Obama’s first year in office, from $459 billion in 2008 as the U.S. coped with a deep recession caused by the financial crisis. While the U.S. ran a deficit for every year of Obama’s two terms, the shortfall shrank each year, and it stood at $585 billion in 2016.
Ryan’s earlier proposal to impose a border-adjusted tax would have helped make up for the costs of the tax cut. The decision in July to abandon it left few politically palatable options to mitigate the impact on the deficit.
Without the revenue from the border-adjusted tax, some popular but expensive provisions in the House tax bill are set to expire to avoid adding more to the deficit than allowed under Senate budget rules for legislation that can pass with a simple majority. For instance, the plan’s $300 family tax credit is written to last just five years. That combined with other provisions means some middle-class families would see a tax increase over the next decade.
When asked about those parts of the legislation expiring, Ryan said lawmakers in future years may decide to make the tax credit permanent, along with other provisions that benefit the middle class. But doing so would add even more to the deficit.
Deficits may also be an issue in the Senate, where three Republicans—James Lankford of Oklahoma, Bob Corker of Tennessee and Jeff Flake of Arizona—are raising concerns about adding to the federal government’s budget shortfall. Republican leaders can’t afford to lose more than two votes from their members if Democrats remain solid in opposition.
Ryan has rejected criticism that his tax overhaul wouldn’t grow the economy enough to pay for itself.
“Paul Ryan deficit hawk is also a growth advocate,” Ryan said in a Fox News interview this month. “Paul Ryan deficit hawk also knows that you have to have a faster growing economy, more jobs, bigger take-home pay, that means higher tax revenues."
Other House Republicans said the prospect of deficit increases underscores a need to cut spending, including programs such as Medicare and Social Security that Trump has said he wouldn’t scale back.
Mark Sanford, a South Carolina Republican who voted for the House bill, said he’ll reserve judgment on the final version, citing concerns about the cost and a higher tax bill over the next decade for some middle class families.
This highlights the challenge for Ryan over the next month: to keep his members on board as the Senate makes further changes, and carefully negotiated compromises are dismantled by a conference committee that will seek to reconcile the two bills.