In today's Tax Notes, Martin Sullivan discusses what might happen on the tax legislative front if Republicans, despite all the current Sturm und Drang, end up winning the White House and holding both houses in Congress. The background for this is that, despite what Alan Auerbach and Bill Gale have recently called our "deteriorating fiscal outlook" over the medium to long term, all Republican candidates are calling for enormous tax cuts, for which they offer no realistic funding suggestions.
Thus, according to the Tax Policy Center, the 10-year revenue loss from the Trump tax plan is $9.5 trillion. For the Cruz tax plan it's $8.6 trillion (Sullivan says $19.5 trillion, but I'm not sure where he gets that number). For the Rubio tax plan - worth noting even though the candidate is not exactly amassing huge vote or delegate numbers, given that it may be the best evidence of what Republican orthodoxy favors - hence, perhaps predictive if the convention nominates None of the Above - the 10-year total is $6.8 trillion.
These are revenue loss figures. If they're correct, the actual budgetary impact on national debt and the annual budget deficit would be greater, because one would have to add in added annual interest costs on the debt. Plus, while the proposals might have some pro-growth impact, to a modest degree, from their lowering marginal tax rates, they would also have negative growth effects - which I suspect would outweigh the positive dynamic effects - from their increasing so enormously the fiscal drag from the rising public debt.
Sullivan argues that, in the scenario where the Republicans take the White House while holding both houses in Congress, they would likely end up proposing tax cuts "more modest than [what] they are proposing now." Leaving aside Trump's evident unpredictability, I see no reason to believe this. They would have campaigned for the big tax cuts, and would have strong internal constituencies demanding them, and it is not as if grounded empirical reasoning appears to cut a lot of mustard with this crowd. Even the Jeb Bush tax cut was projected to be in about the same ballpark as that proposed by Rubio, and I gather that he had the greatest buy-in by leading Republican economist types.
Sullivan concludes, I think correctly, as follows: "If they push aggressively for tax cuts in 2017, there is a good chance Republicans in Congress will be creating a situation similar to that of Republicans in Kansas after their 2012 tax cuts. The revenue losses are real, but the hoped-for supply side economic benefits don't materialize. This may be a risk they are willing to take, although the financial markets may not be so complacent.
"The uncertainty surrounding the CBO's projections about the future of the economy and federal finances cannot be emphasized enough .... But if they [and we] are unlucky ... the federal debt could reach stratospheric levels and Dick Cheney's dictum that 'Reagan proved deficits don't matter' will be severely tested."
UPDATE: There are two extra points that I want to add to this discussion. First, according to the Tax Policy Center study on which both Sullivan and I are relying, $8.6 trillion (or more precisely, about $8.75 trillion) is the 10-year revenue loss from the Cruz tax plan, whereas $19.5 trillion is the 20-year increase in federal debt from the Cruz plan. So the latter number reflects 10 additional years of negative revenue results, plus interest payments on the added federal debt throughout the twenty-year period.
Second, the recent Wall Street Journal editorial attacking the TPC estimates as if they were a partisan hit job is beneath noticing, although obviously TPC had to respond and did so. Among the main points they made in their response is that, in all of these cases, as I informally noted above, the positive growth effects from lowering marginal rates would likely be relatively modest (a huge weight of empirical evidence suggests), and might even be outweighed by the negative growth effects of the increased fiscal drag from substantially higher federal debt. They also note that they have gotten feedback on their estimates from reputable economists across the political spectrum, including, e.g., Gregory Mankiw from the more conservative side.
It's shocking to me that any reputable person would endorse unfunded tax cuts as large as those in the leading Republican plans, given our broader fiscal circumstances, even if one's preferred end-state would include those tax cuts plus other changes on the outlays side that in fact are unlikely to be adopted. But that is the partisan political world we live in.