The Man Behind Paul Ryan's Budget Plan Got the Tax Cuts Wrong, Too

By Tina Dupuy

Ayn Rand fanboy and Wisconsin Rep. Paul Ryan (R) appears to have baffled the entire Beltway of blabbers into muttering monosyllabic loops of the words "brave" and "bold." Yes, the House Budget Committee Chairman released his plan, The Path to Prosperity, and it is a shocker... especially if you're not aware of the buzzword-laden 74-page document's intellectual history.
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To help get The Path on the road to widespread approval -- at least outside of the GOP-run House of Representatives, where Democrats opposed it during voting Friday -- Ryan sent a letter in February to one William Beach, the director of the Center for Data Analysis at the Heritage Foundation, a conservative think tank. On U.S. House of Representatives letterhead, Ryan implored, "The Committee on the Budget requests that The Heritage Foundation provide technical advice or assistance to the Committee for the use of all its Members with respect to budget proposals provided by the Committee." That included giving the committee "specific information on budget scoring" of such proposals, "together with such nonpartisan analysis, study and research as the Foundation may have that is relevant to such proposals."

Now, it's an open question as to whether the Foundation -- a rightwing gem funded by Koch Industries, Exxon Mobile and Altria nee Phillip Morris -- has such "nonpartisan" research. Their mission, after all, "is to formulate and promote conservative public policies," and generally that's the Grand Old Party.

No surprise, the Foundation approved of Ryan's "bold" and "brave" plan to cut taxes further for the wealthy (by a whopping 10 percent) and increase the burden on the rest of the populace. In turn, Ryan boasted in a recent Wall Street Journal op-ed:

A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4 percent by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage's analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year.

Meanwhile, last three pages of Ryan's The Path: Fiscal Year 2012 Budget Resolution, published by the House Budget Committee are, in essence, this very analysis provided by the Heritage Foundation -- complete with a link to the Foundation's report.

The Heritage Foundation in general and Beach, in particular, do have a long record on this type of economic enthusiasm -- and as it turns out, those past nonpartisan analyses provide a clear measure by which we can assess the credibility of the latest round of tax-cut dependent growth projections.

Let us turn now to a paper published in March 2001 titled, How Faulty Official Figures Greatly Overstate the Cost of the Bush Tax Plan. In it, Beach along with his colleagues Daniel Mitchell and D. Wilson wrote, "Official estimates -- even from the Bush Administration -- greatly overstate the revenue 'cost' of President George W. Bush's tax reduction plan. The reason: Official 'bean-counters' typically assume that changing tax rates causes little or no change in work and investment."

They continue: "In reality, of course, quite the opposite is true.... Lower tax rates lead to a bigger tax base, which leads to some degree of revenue feedback, lowering the net cost of the tax rate reduction. When this reflow effect is applied to President Bush's $1.6 trillion tax plan, the actual net revenue cost is less than $1 trillion, or 53 percent of the official estimate."

Fact: The unpaid Bush tax cuts cost America $2.5 trillion during their first 10 years. A revenue loss of $2.11 trillion plus $379 billion in additional interest payments on the national debt, according to Citizens for Tax Justice.

That's $1.5 trillion more than the Heritage Foundation so boldly and (ahem) bravely claimed would be lost -- and also $900 billion more than the "bean counters" cautioned.

There were a couple of other predictions Beach and his team made that also fell flat when they touted the bill initially called the "Economic Growth and Tax Relief Reconciliation Act of 2001" (and, later, the Bush tax cuts).

In their report they claim: "The Heritage Foundation Center for Data Analysis (CDA) conducted a dynamic simulation of the proposals in the President's tax relief plan. The final results show that the Bush plan would significantly increase economic growth and family income while substantially reducing federal debt." 7E842ACDB926B0C456F6FD35A876419A.gif

Instead, the federal debt shot up nearly $5 trillion under this plan -- and half of that debt came from the tax cuts. As far as increasing economic growth and family income, the middle class saw a Lost Decade where their wages failed to rise for the first time in the four decades that the Census Bureau has been keeping track .

The Heritage Foundation's 2001 report kept up a drumbeat of upbeat expectations and projections. If Bush tax cut legislation were to pass, it would, the Foundation said:

1) Effectively pay off the federal debt;
2) Reduce the federal surplus by $1.4 trillion;
3) Substantially increase family income;
4) Save the entire Social Security surplus;
5) Increase personal savings;
6) Create more job opportunities.

The authors continued, confidently predicting that "over 1.6 million more Americans would be working at the end of FY 2011" thanks to the Bush tax cuts. Some other promises: "the unemployment rate would average just 4.7 percent instead of 4.9 percent from FY 2001 to FY 2011" and the cuts would create growth so robust that the "Social Security surplus would increase by $53 billion, making more resources available over the next 11 years to reform the program."

We all know how that worked out.

In an inspired bit of timing in June of 2008, basically days before the economy cratered and President Bush had to "abandoned free-market principles to save the free-market system," the Heritage Foundation announced the tax cuts were a success. D13DB9B1A98359E6FF8F6290D38266EC.gif

In a report, J.D. Foster wrote: "Tax relief worked.... It produced a more growth-oriented tax policy for the long term, helping the economy to weather current storms arising in the housing and capital markets."

If this were Vegas, where the house thrives on bad bets, the Heritage Foundation would not only get their room comped, and some free tickets to the Blue Man Group -- the entire Strip would be begging to have them visit their casinos.

I asked Beach, whose name is on the report for the Bush Tax Cut report and Ryan's plan, about the rosy forecasts that turned out to be incorrect. He said warmly, "I do like to be right more than wrong." He called it a standard economic theory to cuts taxes for the wealthy to create a greater supply of labor and capital (though, of course, liberal economists disagree with this supply-side economic thinking, as does the reality of the last 30 years).

"Models are meant to give advice. Lawyers give advice but they don't know what will happen in the future," stated Beach. He noted the dot com bubble that was about to burst when his report was published, and said that that, coupled with 9/11 and then what Beach called "politically motivated spending increases by the Bush Administration," threw things off. He meant Medicare Part D and the Iraq War.

"Trends of the economy are what you're forecasting." Beach added, "Trends are almost always wrong."

Even my car mirror -- a device that gives empirical data in real time -- has a disclaimer about objects being closer than they appear. But projections about the wonders of tax cuts are almost always sold as absolute.

If the forecasters don't see it their reports as scripture, why do the politicians?

Arguably all events are unforeseeable. That doesn't give a pass as to why policies that haven't worked are being repackaged as bold new ones we should try for the first time.

Ryan's plan isn't bold and brave. It's been and done.

There are 2.5 trillion reasons why the Bush tax cuts failed at "substantially reducing federal debt" and why further cuts would result in similar results.

"The one thing that's not in dispute is that we have to do something," Beach offered graciously. He's very right about that.

But maybe Ryan who voted for the Bush tax cuts three times, Medicare Part D, plus TARP and the deficit-funded Iraq War said it best when he wrote in his proposal, "Government at all levels is mired in debt. Mismanagement and overspending have left the nation on the brink of bankruptcy."

Brave.

Image credits: The Heritage Foundation

This article available online at:

http://www.theatlantic.com/politics/archive/2011/04/the-man-behind-paul-ryans-budget-plan-got-the-tax-cuts-wrong-too/237360/