For decades, many Republicans have embraced the “supply-side” theory that tax cuts more than anything else help to spur economic growth through savings and investment and that raising taxes – except under the most dire of circumstances – hurt jobs and the economy.
Indeed, the GOP-controlled Congress in early May approved a long-term budget plan that would wipe out the deficit over the next decade without raising taxes. Now, the Republicans’ long-standing aversion to tax increases is coming back to haunt them, both on Capitol Hill and throughout the country.
Related: Why You’ll Need a Tank to Drive America’s Highways
While tax policy likely will be a prominent issue in the 2016 presidential campaign, many of the GOP candidates appear to be stepping gingerly in this area – careful not to promise absolute cuts in taxes.
The Gas Tax
The most urgent problem facing GOP leaders in Congress is what to do to avert a crisis in the federal Highway Trust Fund this summer -- one that threatens the possible shutdown of some state highway construction projects beginning in August. So far, Congress has passed several short-term spending “patches” to keep the federal highway and infrastructure program afloat until a long-term, comprehensive plan can be ironed out.
Raising the 14.8-cents per gallon federal gasoline tax at a time of relatively low gas prices appears to be the most logical and direct approach to fixing the problem, according to many state officials, business leaders and highway advocates. But House Speaker John Boehner (R-OH) and other GOP leaders have ruled out an increase in the gas tax that was last increased in 1993.
The combination of the Tea Party rebellion against Boehner’s reelection as speaker in January and solid opposition from outside conservative groups likely struck the death knell for a tax increase to replenish a Highway Trust fund that’s been running on fumes for years.
Senate and House Democrats are contemplating a get-tough strategy that would prevent Republican leaders from passing yet another stop-gap highway funding measure this summer, according to Politico. “I think it’s horrible that they’re even thinking about the short-term extension,” Senate Minority Leader Harry Reid (D-NV) said this week. “I think it’s ridiculous.”
State Tax Dilemmas
Kansas: Republican Kansas governor Sam Brownback and the GOP controlled state legislature are confronting the grim reality that their supply-side tax strategy of major cuts over the past three years is a flop – and that without a tax increase of some sort they will face a huge, untenable budget deficit this summer. Just several days after Brownback won a hard-fought reelection campaign last November, the Kansas budget office revealed that state revenue projections were off by more than $200 million. That boosted the overall budget gap to $600 million.
Last weekend, Brownback did the once unthinkable: He called for an increase in the sales tax to 6.65 percent, elimination of itemized deductions, and a cigarette tax increase of 50 cents per pack. But even those measures won’t fully close the budget gap. Brownback claimed his plan would reduce the budget deficit to $81 million this year and $255 million next year.
Connecticut: After 3 major companies threatened to pull out of the state because of new taxesproposed by Democratic governor Dannel Malloy, the governor quickly lowered a $700 million tax increase on business to $504 million over two years and added additional charges to residents to the tune of $1.5 billion. Travelers Insurance, Aetna, and General Electric were just three companies that threatened to pull out of the state.
Michigan: Faced with the problem of a deteriorating highway system and shortcoming in the school system, Michigan’s Republican governor Rick Snyder turned to voters earlier this year with a proposal for increasing sales taxes to pay for schools and state gas taxes to generate $1.3 billion annually for road and bridge construction.
Snyder argued that the increase was essential because Michigan’s damaged roads are inferior to those in neighboring Ohio and costly to motorists whose vehicles are damaged by potholes. Voters overwhelmingly rejected the plan in a referendum in early May.
Where the GOP Candidates Stand
Tax policy will be an important part of the presidential debate this year, but experts are divided over whether any of the major GOP candidates will support a major tax cut that could add to the deficit. Richard M. Skinner, a political science professor at Johns Hopkins and George Washington Universities, flatly predicts that whether the Republican nominee is former Florida governor Jeb Bush, Wisconsin Gov. Scott Walker, Sen. Marco Rubio of Florida, or someone else, the GOP will endorse a major tax cut.”
Skinner notes that Republican candidates are still consulting with supply-side guru Arthur Laffer. “Since the late 1970s, deep “supply-side” tax cuts have become the party orthodoxy,” he wrote recently. “No matter the economic context or the lack of personal enthusiasm of the candidate, the GOP will back slashing marginal rates.”
Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, begs to differ. He wrote on the TaxVox blog that the large field of GOP presidential aspirants has been strangely silent until now on the need for major tax rate cuts. Rather, they at most have outlined support for major overhauls of the tax system – but changes that are “revenue neutral” and don’t add to the deficit.
For example, while Jeb Bush has embraced the supply-side tax philosophy, he has refused to sign an anti-tax pledge. Rubio has co-sponsored a tax plan that emphasizes a large child tax credit and cuts the corporate rate, but that proposal might increase rates for some upper-middle-class individuals. Former neurosurgeon and Tea Party favorite Ben Carson advocates a 10-percent flat tax, but he insists his approach would raise about the same of revenue as the existing tax code.
“Even Sen. Ted Cruz, another flat taxer, isn't saying Americans pay too much in taxes,” Gleckman wrote. “While he frequently vows to abolish the IRS, he doesn’t promise to cut taxes.”
Top Reads from The Fiscal Times