WASHINGTON — Republican lawmakers are gearing up to battle a powerful force in the coming skirmish over a $1.5 trillion tax cut: Economists.
Party leaders are rejecting criticism that their yet-to-be-unveiled tax plan will add to the ballooning federal deficit, saying the tax cuts will essentially pay for themselves by generating robust economic growth. And they are determined to secure economic assessments that prove those optimistic assumptions.
Their position is setting the stage for a fight with Washington’s economic scorekeepers — such as the Joint Committee on Taxation and the Congressional Budget Office — who are required to assess the cost of tax legislation and its impact on the federal deficit. Those assessments — a so-called budget score — could ultimately determine the scope and permanence of any tax overhaul because of budget rules limiting legislation that adds to the long-term deficit.
Senator Bob Corker, a Tennessee Republican who sits on the budget committee, seemed to throw down the gauntlet this week, saying he would push for a pro-growth tax overhaul that pays for itself using “valid models.” He singled out the Joint Committee on Taxation in comments to reporters, suggesting that Republicans would be looking beyond their analysis when assessing the plan’s cost.
Mr. Corker, in an interview on Friday, said that the experience of working with the Congressional Budget Office during Republican efforts to repeal the Affordable Care Act buttressed his view that analyses from economists outside the government should be considered when scoring tax legislation.
“I do think it is time for us to have a real debate and to have real economists weighing in and we should take other things into account other than Joint Tax and C.B.O,” Mr. Corker said. “I think it’s fair for us to get outside help.”
He added: “We’ve learned during the health care debate, these guys are not super-people.”
To some fiscal conservatives, anti-deficit groups and veterans of past tax bill battles, the reluctance to rely on traditional, nonpartisan scorekeepers is a sign the math needed to support tax legislation is going to get fuzzy.
“Without massive budget gimmicks, there’s no way they can do what they want to do,” said David Brockway, chief of staff of the Joint Committee on Taxation from 1983 to 1987.
The debate over budget scoring comes ahead of a big tax week. On Sunday, Republican members of the House Ways and Means Committee will hold a two-day policy retreat to crystallize their thinking on the tax plan. On Wednesday, the “Bix Six” Republican working group of Congressional and Trump administration officials are expected to finally release a framework of policy principles so the legislative process can begin.
Simmering beneath the discussions are a set of arcane rules that dictate how the Senate and House must account for policy changes that touch every corner of the economy. Optimistic growth assumptions are important because Republicans are planning to use a procedural tool called budget reconciliation to pass a tax bill through the Senate with a simple majority. The drawback of this expedited path is that if official projections from the Joint Committee on Taxation find that the plan will add to the deficit after a decade, the changes made to the tax code have to expire after that period of time.
Budget scoring can be influenced by a variety of factors, including economic forecasts and assumptions about future tax and spending levels. For instance, a model that assumes higher economic growth will project lower deficits since stronger growth tends to raise taxable income and reduce spending on low-income programs. The Office of Management and Budget and Congressional Budget Office both estimate that each 0.1 percentage point increase in annual economic growth reduces deficits by roughly $300 billion over the coming decade. Future deficit levels can also go up or down depending on the assumptions economists make about future tax and spending levels.
Republicans fret that the Joint Committee on Taxation and the Congressional Budget Office will underestimate the amount of economic growth from their tax cuts and plans to simplify the tax code. The Trump administration says its policies will get the economy growing at a rate of 3 percent, which they say will generate more than enough revenue to pay for the tax cuts.
“Any plan we put forward we believe should be paid for with economic growth,” Treasury secretary Steven Mnuchin said at a Senate hearing in May. “I am concerned as to whether some of the models will attribute enough growth in dynamic scoring, but when we present the details, we will present how we think it should be paid for.”
Yet economists also have concerns about that 3 percent growth number. The Federal Reserve this week said the economy is continuing to grow at a moderate pace and signaled it will likely raise interest rates in December. In March, the Fed estimated that the maximum sustainable pace of economic growth is around 1.8 percent and the Congressional Budget Office puts the ceiling at 1.9 percent. While low by historical standards, economic growth is determined by expansion of the work force and improvement in the amount that workers can produce, both of which have slowed in recent years as a result of an aging work force and lower productivity.
Meanwhile, veterans of past budget fights say while economic growth can alleviate the deficit hit from a $1.5 trillion tax cut it cannot offset it entirely.
“If it is a well-designed tax policy, it will partially offset the cost,” said Douglas Holtz-Eakin, a conservative economist who served in the George W. Bush administration and advised John McCain’s 2008 presidential campaign. But, he added, “there’s no evidence anywhere that a tax cut of that magnitude, regardless of composition, will offset” the entire $1.5 trillion.
Some budget watchers are concerned that the Senate could move away from relying on the taxation committee or the Congressional Budget Office and procure rosier projections from friendlier agencies such as the White House’s Office of Management and Budget, the Treasury Department or partisan think tanks.
It is ultimately up to the chairman of the Senate Budget Committee, Senator Mike B. Enzi of Wyoming, to determine who handles the scoring. Thus far he does not appear inclined to make radical changes to the rules.
A spokesman for Mr. Enzi declined to comment on his position.
Conservative groups are urging Republicans to stop relying on the taxation committee, saying it uses an antiquated economic model that underestimates growth.
“The concern is if they just blindly follow the Joint Committee on Taxation’s numbers, it will show significantly less economic growth than the reality will be,” said Adam Michel, a tax policy analyst at the Heritage Foundation. “This could harm the chances for tax reform.”
Questioning the credibility of government scorekeepers has become something of a parlor game in Washington: The Congressional Budget Office came under attack earlier this year for its health care legislation projections. And the Joint Committee on Taxation, established in 1926, has also come under fire previously for failing to reflect economic realities in its analyses of plans to cut taxes.
At times, unexpected factors have interfered with the accuracy of the committee’s forecasting, such as when the attacks of September 11, 2001, rocked the economy and worsened deficits after President George W. Bush cut taxes that year. A 2010 report from the Tax Foundation concluded that there was not a definitive answer to how much the Bush tax cuts cost the Treasury in revenue, but that it was more than what was expected at the time.
But the stakes are getting higher as the nation’s debt level continues to rise — it topped $20 trillion this year and is expected to grow by an additional $10 trillion over the next decade as federal health and retirement programs spend more on an aging population.
“The ultimate issue here is that we have a federal budget that’s on an unsustainable track,” Mr. Holtz-Eakin said.
In addition to using alternate scorekeepers, Republicans have also discussed switching from a “current law” budget baseline to a “current policy” baseline. This would allow Republicans to avoid offsetting nearly $500 billion of expiring tax breaks, making the tax plan appear less costly. Earlier this year there was a push by some lawmakers, led by Senator Pat J. Toomey, the Pennsylvania Republican, to expand the budget “window” from 10 years to 20 years or more. This idea, which has been dismissed by party leaders, would allow for tax cuts that add to the deficit to last longer before expiring.
“If you change the rules in ways that allow you to make the debt grow larger, it’s a bad thing,” said David Wessel, a senior fellow in Economic Studies at the Brookings Institution. “All that’s doing is putting on blinders and pretending tax cuts will pay for themselves.”
Rohit Kumar, a former top aide to Senator Mitch McConnell, the majority leader, said Republicans should be careful when considering making unorthodox changes to budget policy to make their tax cuts appear more palatable. Such tricks could come back to haunt them, he said, when Democrats are in power.
“You quickly have a slippery slope where you decide whatever result you want and find a model that works with that,” said Mr. Kumar, who now works at PwC, an auditing firm. “If you are going to do this, you have to understand that there are potential risks down the road.”