The political response to the Tax Policy Center’s analysis of House Budget Committee chairman Paul Ryan’s (R-WI) fiscal plan was predictable, and mostly based on caricatures of what TPC actually concluded. To review: TPC found that tax cuts similar to those described in the committee’s plan would add $5.7 trillion to the budget deficit over the next decade. Republicans responded by suggesting we came up with these numbers while “smoking something.” Democrats concluded that TPC proved the GOP plan would raise taxes on the middle-class by trillions of dollars. To our GOP critics, I am fairly sure our modelers were not under the influence of illicit drugs while running the Ryan budget. I can’t say for sure, but they mostly prefer to hang out in the gym. To the Democrats who so enthusiastically embraced our analysis, thank you for your support.  However, we did not say what you wish we had said.   To start, TPC did not analyze any specific tax proposal because the House budget does not include one. Instead, we analyzed the outlines of the tax cuts it endorsed—individual tax rates of 10 percent and 25 percent, a corporate rate of 25 percent, and repeal of the Alternative Minimum Tax and the tax hikes included in President Obama’s 2010 health law.    While the House budget promises to offset the entire cost of those tax cuts, it says very little about how it would do that, beyond a vow to “simplify” the revenue code. Our tax model is very sophisticated and our modelers very smart, but analyzing “simplify” is well beyond their abilities. Thus, we did not attempt to measure promised, but non-existent, revenue increases. We did show that the tax cuts in the proposal are heavily skewed to high-income taxpayers. Fifty-five percent of the tax savings would go to the highest-income 1 percent of households, who make $574,000 and up. Thus, House Republicans will find it very difficult to offset the cost of those tax cuts while maintaining the current level of progressivity. And that was really the key message that I took from the TPC numbers: By promising deep rate cuts without adding to the deficit, the GOP has set for itself a nearly impossible task. Think of it like this: The Ryan tax cuts would dig a $5.7 trillion hole in the budget. House Republicans now have several options as they confront that self-made pit.  

• They could make the hole smaller by scaling back the promised tax cuts. Ryan and House Ways & Means Committee chair Dave Camp (R-MI) seem to recognize this possibility by calling the proposed rate schedule a “goal.”
• They could cut spending more deeply to help pay for the tax cuts.
• They could add to the deficit.
• They could do what the Democrats allege: Scale back tax preferences in such a way that middle-income households pay higher taxes than they do today while high-income people enjoy a tax cut. After all, the current distribution of the tax code is not written on stone tablets. Of course, the idea that either Obama or congressional Democrats would go along with this is a fantasy.       
• Finally, the House GOP could pay for these tax cuts by eliminating tax preferences in a way that is both revenue- and distributionally-neutral. This would be very, very tough. It would require them to slash popular deductions for charitable giving and state and local tax payments. And it would require the GOP to raise taxes on investment income—something the party has opposed for years. But nothing stops them from trying.

In sum, TPC described the size and nature of the hole the House GOP has dug for itself. It will now be up to the House itself to figure out what to do with it.