We all know that folks involved in debates on economic policy are not very good at arithmetic. That's why almost no one was able to see the $8 trillion housing bubble that sank the economy. But we can always speculate about what the world would look like if arithmetic mattered.
Right now, the Republicans are claiming that cutting the corporate income tax rate from 35 percent to 20 percent will lead to a huge surge of investment and growth. They claim that the additional growth from this tax cut will produce $1.5 trillion in extra revenue. This is why they say they can have a tax cut that totals to $1.5 trillion without increasing the budget deficit.
While almost no independent economists agree that growth will be large enough to produce this much revenue, it is at least a coherent position. Tax cuts can boost growth, and higher growth does mean more tax revenue. The problem with this story is that the Republicans are apparently no longer talking about reducing the corporate income tax to 20 percent, they are planning just to reduce it to 21 percent. Nonetheless, they are still claiming it will produce enough growth to generate $1.5 trillion in additional revenue.
Fans of arithmetic everywhere should be ridiculing the Republican leadership for flunking third-grade math. If a cut in the tax rate to 20 percent produces enough growth to generate $1.5 trillion in revenue, then a cut to 21 percent must produce somewhat less growth and therefore less revenue. In effect, the Republicans are now saying that they can get the same amount of growth and revenue regardless of the size of the tax cut.
In Republican Tax Cut World, we must have a story that looks something like this:
Size of Tax Cut Revenue Generated from Additional Growth
15 percentage points to 20 percent $1.5 trillion
14 percentage points to 21 percent $1.5 trillion
13 percentage points to 22 percent $1.5 trillion
12 percentage points to 23 percent $1.5 trillion
11 percentage points to 24 percent $1.5 trillion
10 percentage points to 25 percent $1.5 trillion
9 percentage points to 26 percent $1.5 trillion
8 percentage points to 27 percent $1.5 trillion
7 percentage points to 28 percent $1.5 trillion
6 percentage points to 29 percent $1.5 trillion
5 percentage points to 30 percent $1.5 trillion
4 percentage points to 31 percent $1.5 trillion
3 percentage points to 32 percent $1.5 trillion
2 percentage points to 33 percent $1.5 trillion
1 percentage points to 34 percent $1.5 trillion
Yes, this is pretty damn ridiculous, but fortunately for the Republicans, knowledge of arithmetic is rare in Washington policy circles, so they will likely get away with claiming the same revenue dividend from additional growth, even with a smaller tax cut.