Marco Rubio Claims Massive Tax Cut Will Balance The Budget In 10 Years

CNBC: Rubio Cites “Dynamic Effect” As Proof That Tax Cuts Will Balance The Budget. During an October 5 interview on CNBC's Fast Money Halftime Report, correspondent John Harwood questioned Republican presidential candidate Sen. Marco Rubio (R-FL) about the differences between his tax reform proposal and those put forth by his fellow GOP hopefuls, Jeb Bush and Donald Trump. Rubio claimed that, unlike his Republican rivals, his tax plan “begins to create a [federal budget] surplus” within 10 years because it is more “dynamic” than the Bush or Trump plans:

JOHN HARWOOD (HOST): Let me ask you about a tax question. All of you guys have got tax plans. All of you have abandoned the guardrail of making a deficit neutral that Mitt Romney ran on in 2012. If that's the case, if Trump's plan, if Jeb's plan, if Marco's plan all add to the deficit, why not, if you're a Republican voter, why not go with Trump's or Jeb's, who have much lower top rate than you? You stay at 35, they go to 28 and 25.

SEN. MARCO RUBIO: Yeah, a couple points. Number one, my rate on the top end, I take all business income, including s corporations, and tax it only at 25 percent. That's a significant amount of small business in America today paying on their personal rate as high as 39.5 percent. They would only pay 25.

HARWOOD: Trump says 15 percent.

RUBIO: Well, but here's the point. Within ten years, within the ten-year window, my plan begins to create a surplus. The second point I'd make to people is, you can't tax your way into a stable budget.

HARWOOD: Wait, your plan creates a surplus because of the dynamic effect?

RUBIO: absolutely. The combination of growth--

HARWOOD: But why isn't their plan more dynamic because they take the top rate down lower?

RUBIO: It doesn't. The numbers don't add up. If you look at it, my plan in the tenth year becomes revenue positive, but it's deeper than that. Here's my point. The budget cannot be balanced simply on tax reform. Tax reform is about generating growth, which my plan does with impressive numbers. But you also have to do entitlement reform. You can't cut your way out of this and you can't tax your way out of this. [CNBC, Fast Money Halftime Report, 10/5/15]

Media Highlight $4 Trillion Cost Of Rubio's Plan Over 10 Years

NYT: A Better Name For Rubio's Proposal Is “The Puppies and Rainbows Tax Plan.” In a March 12 post on The New York Times' Upshot blog, Josh Barro derisively referred to Rubio's tax plan -- which is based on a prior tax reform package he crafted with Sen. Mike Lee (R-UT) -- as the “Puppies and Rainbows Tax Plan” because it promises much more than it could ever deliver. Barro noted that a Tax Policy Center analysis of the original Rubio-Lee plan projected that it would cost at least $2.4 trillion over 10 years, even before the additional trillions of dollars of tax cuts kick in:

“It's sort of the Oprah Winfrey theory of tax cuts,” says James Pethokoukis, an economic policy scholar at the right-of-center American Enterprise Institute. “She was like 'You get a car, you get a car.' Well this is 'You get a tax cut, you get a tax cut.' ”

Since Oprah is a real person with no actual involvement in this proposal, it's better to describe the Rubio-Lee proposal as the Puppies and Rainbows Tax Plan. After all, it's full of things everybody likes, at least on the Republican side: family tax cuts that will make it easier to buy the children a puppy, and capital tax cuts that chase a pot of capital investment gold at the end of the rainbow.

The main problem is that both puppies and rainbows are expensive. According to an analysis by the Tax Policy Center, a previous version of the plan advanced by Senator Lee would have cost the government $2.4 trillion in lost revenues over 10 years, and this plan adds new deep tax cuts (including the capital gains cut) that would cost trillions more. [The New York Times, The Upshot, 3/12/15]

Vox: Rubio's Claims That Tax Plan Pays For Itself Are “Nonsense.” In an October 6 article, Vox Editor-in-Chief Ezra Klein responded to Rubio's claim on CNBC that his tax-cutting plan will pay for itself and balance the budget within 10 years, calling the GOP hopeful's boast “nonsense.” Klein noted that independent estimates of Rubio's tax plan estimate it will add at least $4 trillion additional dollars to the national debt over a decade:

On Tuesday, Marco Rubio told CNBC's John Harwood that his massive tax cuts -- which estimates have found would blow a roughly $4 trillion to $5 trillion hole in the deficit -- creates a surplus “within the 10-year window.”

It is worth slowing down to make clear exactly what Rubio said there. Rubio's plan cuts corporate taxes, capital gains taxes, taxes on the rich, taxes on the middle class -- it cuts taxes on everyone. The cuts are so large that the New York Times called it “the puppies and rainbows plan.” And what Rubio is saying is that his massive tax cut is actually going to mean more tax revenue for the government -- that two minus one will equal four.

[...]

Rubio's assurance will, to most tax analysts, sound like nonsense. And it is nonsense. A plan that massively cuts taxes isn't going to lead to budget surpluses. But it's nonsense that has been validated by an important conservative tax group, that shows the kind of candidate Rubio is looking to be, and that speaks to why the debate over taxes in Washington has become so dysfunctional. [Vox, 10/6/15]

MSNBC: Principles Of Rubio Tax Plan “Thoroughly Discredited.” In an October 6 blog post, MSNBC's Steve Benen described Rubio's promise of a budget surplus in 10 years as “bonkers” and not “serious”:

In Rubio's mind, his approach to trickle-down economics will be so effective, it'll send the economy into overdrive, create all kinds of new revenue, and the tax cuts will pay for themselves.

In other words, if he's elected, Rubio would inherit a deficit of several hundred billion dollars, which he'll eliminate with massive tax breaks, none of which he'll pay for, all of which will lead to a surplus.

This is bonkers. No serious person seriously believes tax cuts can pay for themselves - and that includes the man congressional Republicans recently chose to lead the Congressional Budget Office. If politics made more sense, Rubio's tax-cuts-lead-to-surpluses claims would effectively be a disqualifier, since the argument has already been thoroughly discredited. [MSNBC, 10/6/15]

Slate: Rubio Is A George W. Bush Republican. In an October 6 column, Slate political correspondent Jamelle Bouie compared Marco Rubio's tax plan, along with Jeb Bush's tax plan, to those of former President George W. Bush, arguing that both men hope to represent a sort of “third term” for the 43rd president:

In fact, they come from a specific GOP tradition--they are both George W. Bush Republicans.

[...]

You see this with their economic plans. In the 2000 election, George W. Bush bridged the divide between the Republican donor class and ordinary voters with a massive upper-income tax cut, sold as middle-class tax relief. The Bush plan also had a large child tax credit and gave a break to married couples. It was, his campaign argued, a tax plan for everyone. “High-income people would pay a bigger proportion of the tax bill after the Bush tax cuts than before them,” said his head economic advisor. This was only true in the axiomatic sense that wealthy people pay more taxes than poorer ones. In terms of value, however, the vast bulk of the worth of Bush's tax cuts would eventually go to the highest earners.

This is the Marco Rubio and Jeb Bush tax approach, full stop. On the more populist side, Rubio would create a new child tax credit, Bush would “nearly double” the standard deduction, and both would expand the Earned Income Tax Credit. Both would reduce deductions and other tax subsidies for high-income families, and both would reduce rates for low- and middle-income Americans. But most of the Bush and Rubio tax cuts would go to the wealthiest Americans, from the huge rate cuts for high-income earners and an end to the estate tax, to slashing corporate tax rates and--in the Rubio plan--ending taxes on capital gains, dividends, and interest. [Slate, 10/6/15]

Tax Cuts Are Not Revenue Neutral

CBO Director: “Tax Cuts Do Not Pay For Themselves.” According to an August 25 article in The Hill, the Republican-appointed director of the Congressional Budget Office (CBO), Keith Hall, stated during a press briefing that tax cuts are not revenue neutral and “do not pay for themselves”:

“No, the evidence is that tax cuts do not pay for themselves,” Hall said. “And our models that we're doing, our macroeconomic effects, show that.”

[...]

Some conservatives argue that cutting taxes leads to more economic growth, and thus higher tax revenue from job and wage growth.

The majority-GOP Congress is requiring the CBO to use “dynamic scoring,” which considers how a bill will affect the broader economy and how that might affect the federal budget. The CBO also uses the more traditional static scoring approach.

GOP lawmakers have argued that “dynamic scoring” would provide more accurate estimates. Hall said it does improve the quality of CBO's scores, but he also warned that there is a lot of uncertainty involved. [The Hill, 8/25/15]

Brookings: Tax Cuts Can Reduce Economic Activity. According to a September 2014 report from the Brookings Institution, tax cuts do not always create economic growth, and can even discourage growth by undermining economic incentives to invest. The report also conclude that tax cuts alone, “as a stand-alone policy... will typically raise the federal budget deficit”:

The argument that income tax cuts raise growth is repeated so often that it is sometimes taken as gospel. However, theory, evidence, and simulation studies tell a different and more complicated story. Tax cuts offer the potential to raise economic growth by improving incentives to work, save, and invest. But they also create income effects that reduce the need to engage in productive economic activity, and they may subsidize old capital, which provides windfall gains to asset holders that undermine incentives for new activity. In addition, tax cuts as a stand-alone policy (that is, not accompanied by spending cuts) will typically raise the federal budget deficit. The increase in the deficit will reduce national saving--and with it, the capital stock owned by Americans and future national income--and raise interest rates, which will negatively affect investment. The net effect of the tax cuts on growth is thus theoretically uncertain and depends on both the structure of the tax cut itself and the timing and structure of its financing. [Brookings Institution, September 2014]

Krugman: Only Those Who “Spent The Past 20 Years In A Cave” Still Think Tax Cuts Pay For Themselves. In an October 2 column for The New York Times, Nobel Prize-winning economist Paul Krugman trashed the Republican Party's “obsessions with cutting taxes on the rich,” which he argued “would lavish huge cuts on the wealthy while blowing up the deficit.” Krugman specifically chided Rubio for expanding a tax plan purportedly catered toward low- and middle-income Americans to include even more “windfall[s] for the very wealthy”:

So Donald Trump has unveiled his tax plan. It would, it turns out, lavish huge cuts on the wealthy while blowing up the deficit.

This is in contrast to Jeb Bush's plan, which would lavish huge cuts on the wealthy while blowing up the deficit, and Marco Rubio's plan, which would lavish huge cuts on the wealthy while blowing up the deficit.

[...]

You might think that there was a defensible economic case for the obsession with cutting taxes on the rich. That is, you might think that if you'd spent the past 20 years in a cave (or a conservative think tank). Otherwise, you'd be aware that tax-cut enthusiasts have a remarkable track record: They've been wrong about everything, year after year.

[...]

Well, consider the trajectory of Marco Rubio, who may at this point be the most likely Republican nominee. Last year he supported a tax-cut plan devised by Senator Mike Lee that purported to be aimed at the poor and the middle class. In reality, its benefits were strongly tilted toward high incomes -- but it still drew harsh criticism from the right for giving too much to ordinary families while not cutting taxes on top incomes enough.

So Mr. Rubio came back with a plan that eliminated taxes on dividends, capital gains, and inherited wealth, providing a huge windfall to the very wealthy. And suddenly he was gaining a lot of buzz among Republican donors. The new plan would add trillions to the deficit, which conservatives claim to care about, but never mind. [The New York Times, 10/2/15]