Saturday, January 12, 2019

The Sneaky Ways that the Democratic House Can Raise Taxes

By Veronique de Rugy

The idea of raising taxes is all the rage these days. Thanks to newly minted Rep. Alexandria Ocasio-Cortez (D-NY), people are taking very seriously about taxing personal incomes at rates not seen in the United States since the 1980s. Talking to 60 Minutes a few days ago, Ocasio-Cortez endorsed a 70 percent tax rate on those making millions of dollars of income to pay for a “Green New Deal.”

I won’t weigh in at this time on why such a deal would be a terrible idea. Many scholars have already explained in great detail why this scheme is unrealistic and undesirable — in short, bunk. Instead, I would like to point out that while this scheme is bad economics, it might actually be more politically feasible than people think.

The Democrats who just took control of the House of Representatives have already implemented changes to House rules so that if they decide to act on Ocasio-Cortez’s idea to jack up the top marginal tax rate to 70 percent, no procedural obstructions will block their way.

See, the House rules govern how the House operates over the course of the congressional session. These rules provide an outline to the committees of jurisdiction and specify how bills are considered on the floor. In other words, depending on how these rules are written, they give legislators more or less flexibility to do whatever they want.

Leaving aside the fact that there is something not quite right about the same people (in this case the House Democrats) writing the rules of the game they play, in this case they have made four changes that make it much easier to raise taxes as they please.

Pretend people are robots and don’t react to outside forces: The Joint Committee on Taxation prepares estimates of what will happen to revenue if politicians make various changes in tax policy. There are two ways to score any such piece of legislation. The first doesn’t consider changes in jobs and growth triggered by any change in tax rates (nor, for that matter, any change in spending). It’s called static scoring. The alternative is called dynamic scoring because it does account for expected changes in people’s behavior as a result of the tax changes.

When in control of the House, Republicans had finally gotten the Joint Economic Committee to adopt dynamic scoring and to account for these second-order, or indirect, effects of government policy. Dynamic scoring gives a better idea of what the true impact on revenue from a tax hike will be once people start hiding their income, working less, and investing less as a result of the policy change.

The Democrats repealed the dynamic-scoring provisions of the House rules to return to static scoring, which has been used in the past, as Dan Mitchell reminds us, “to reach the preposterous conclusion that government revenues would be maximized with 100 percent tax rates.” If you are talking about taxing robots, maybe, but not if you are talking about taxing the earnings of actual human beings.

Make the debt-limit hike great again: In the last few decades, fiscal conservatives have suggested using the debt ceiling as leverage to demand that if the borrowing authority of the government is to be increased, that increase should come in exchange for a commitment that we reform the drivers of our future debt and that taxes not be raised. The best example is the debt-ceiling debate of 2011. Now the Democrats, being no fans of fiscal responsibility, have passed a rule that Politico Pro says “would allow for automatic passage by the House of a joint resolution suspending the debt limit after the House adopts a budget resolution.” Under such a rule, there is little to no means of preventing increases in both federal spending and the debt limit from passing the House.

Who needs bipartisanship to jack up taxes when you can just ask your friends for the vote? Until now, the House needed a three-fifth supermajority vote to increase our tax burden. The direct result was that some level of bipartisanship was needed to raises taxes, whether on all of us or on only a few of us. That isn’t the case anymore, because the Democrats removed this requirement. All that’s needed now to raise taxes is a simple majority. In other words, if the Dems can deliver anything close to a unanimous front, they can easily pass legislation that soaks the rich.

If you must pay for your spending frenzy, pay for it with taxes: Republicans, who aren’t in reality any more fiscally disciplined than are Democrats, at least had the good sense to put in place a CUTGO provision. This provision required that for Congress to increase government spending it had to cut government spending by an equal amount. Granted, this rule could easily be waived. But at least the worthy intention was there. Now, the Democrats have changed the rule back to a PAYGO rule. Under this rule, a spending increase can be offset by a spending cut or an increase in taxes (or a mix of both). We know how Congress is about cutting spending, so obviously the tax-hiking option will be preferred.

It is worth noting that a few Democrats, including Rep. Ocasio-Cortez, were against the PAYGO rule, not because they would like to go back to the CUTGO rule, but because they reject the idea that spending increases should be offset at all! Ocasio-Cortez and others were told not to worry because, like CUTGO, the PAYGO rule could be lifted. That wasn’t enough to convince them.

If you were suffering the delusion that House rules are meant to tie the hands of irresponsible legislators, or that surely there must be some rules to protect us from insane policy ideas being implemented in our future, these recent developments should cure you.

The truth is that House members have tremendous flexibility when it comes to making it easy for them to implement their agenda, no matter how misguided it is. If they want more tax hikes, they just change the rules so that they have less need to get bipartisan agreement. If they want more spending but don’t want to offset the higher expenses with spending cuts elsewhere, just allow the offset to take the form of a tax increase. And if they want to conjure the illusion that a tax increase will generate massive amounts of additional revenue, just revert to a scoring system that assumes people don’t react to taxes.

Finally, if all fails, just ignore the rules. That’s what members of Congress do when the rules inconvenience them.

The above originally appeared at

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