This post has been corrected, as indicated below.
My Opinion L.A. post Monday on whether Mitt Romney’s tax reform plan could spur growth without cutting tax bills led tax attorney Michael Flaherty of WTP Advisors to point out some potentially insurmountable procedural hurdles for Romney in Congress.
“The $64,000 question,” Flaherty wrote in an email, "[is] will reducing tax rates stimulate economic expansion and thereby generate greater tax collection? It’s a little like the question about whether cold fusion really works. We’d like the answer to be yes, for a variety of reasons (abundant source of cheap energy), but we don’t seem to be able to prove it.”
The problem is that the Congressional Budget Office and Congress’ Joint Committee on Taxation, which are the official arbiters of a tax proposal’s cost, doesn’t consider how much a tax cut might boost total national income and the gross domestic product. Conservatives argue that a sizable, permanent tax cut will lead people and businesses to spend more, resulting in higher income and tax revenue. But the CBO “will not score the benefits associated with a tax rate reduction because the benefits cannot be demonstrated through empirical data,” Flaherty wrote.
“Instead, only the costs associated with tax rate reduction can be estimated. While I can provide plenty of anecdotal stories suggesting that corporate tax rate reduction will almost certainly stimulate higher levels of economic activity and therefore high tax collections, it is really difficult to present supporting data.”
Romney is counting on faster economic growth to offset part of the cost of his plan. If the CBO won’t play ball, that means Romney’s proposal would be scored as a large increase in the deficit -- something Romney has pledged repeatedly not to do.
If Romney went ahead with the tax plan, he could run into a second obstacle. The pay-as-you-go rules in the Senate require a 60-vote supermajority to approve any change in tax law that increases the deficit. The House GOP majority waived that requirement last year, and a Republican-controlled Senate could conceivably do the same. But it’s a safe bet that such a move would come at a high political price.
[For the Record, 12:40 p.m., Oct. 10: The original version of this piece mentioned only the CBO’s role in judging the cost of tax bills, ignoring that of the Joint Committee on Taxation. It also said the congressional scorekeepers don’t consider how tax cuts change behavior. They do, but within the overall assumption that total income will not change -- in other words, assuming that the economy won’t grow any faster than it would have otherwise.]
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