Taxes

Paul Ryan’s Tax Plan Relies on More Magical Thinking Than We Thought

JM Ashby
Written by JM Ashby

As you know, Speaker of the House Paul Ryan wants to pass a massive package of tax cuts for the rich ("tax reform") that will be financed by a new border tax.

The idea that a border tax alone could pay for Ryan's tax cuts is dubious, but Ryan's plan also apparently depends on what could be described as dynamic scoring for currency value.

Republicans often use dynamic scoring or "magic asterisks" to make their tax cuts look better than they really are by assuming that wealth and economic activity will trickle down to the rest of us, but Ryan's tax plan uses it to assume that the increased value of the dollar will help average people afford to buy basic necessities after the border tax is implemented.

From Bloomberg:

In Washington D.C., one of the selling points of an ambitious border-tax plan rests on a key economic assumption: The dollar will appreciate enough to offset any increase in the cost of cheap, imported goods that so many Americans have come to rely on.

But on Wall Street, traders and strategists who make a living in the $5.1-trillion-a-day currency market say such notions are preposterous. Even if congressional Republicans can set aside their differences to pass the proposed border-adjusted tax -- a prospect that seems more remote with each passing day -- you’d be hard-pressed to find anyone in the market who believes it will result in the greenback strengthening 25 percent, as the plan suggests. [...]

What’s more, the appreciation that Republicans promise may be delivered in the form of inflation instead of a stronger dollar. That happens when retailers pass on the tax to consumers or when sellers of locally produced goods raise prices to take advantage of increased demand. So it’s really the inflation-adjusted dollar (often known as the real exchange rate) that adjusts rather than the nominal rate, which JPMorgan estimates may rise as little as 6 percent versus major trading partners.

That's a lot to take in, and Bloomberg covers the issue in-depth but, to make a long story short, Paul Ryan's plan assumes something will happen that probably won't happen.

Ryan's plan assumes people like you and I will be able to afford things like fruits and vegetables because the value of the dollar will increase and those savings will be passed on to us, but the value of the dollar may not increase as much as he thinks it will and the savings may not be passed on to us.

That's isn't necessarily a surprise -- Paul Ryan's plans always assume things that probably won't happen -- but this is news to me and it makes passing a border tax seem even more preposterous.

The various ways in which Republicans intend pay for their tax cuts could do more damage than if they simply didn't pay for them.

At this point I'm skeptical that Republicans will be able to pass anything, but if they do we should all hope they don't pay for it.

I never thought I'd say that, but the alternatives are much worse.

  • muselet

    Somehow, Paul Ryan has managed to buffalo people who should know better into thinking he’s some kind of policy-and-numbers expert. He’s not. I don’t think he could add 2+2 if you let him use a calculator, and the only policy he truly understands is CUT TAXES! (which hardly qualifies as a policy).

    In an earlier generation, Ryan would have sold actual snake oil and been at risk of getting pummeled by disgruntled customers; now, he selsl budgetary snake oil and basks in the glory of being one of the least-innumerate Republican in Congress.

    The only thing Ryan is good at is finding new ways to fudge numbers to make them look vaguely the way he wants. Being a clever cheat doesn’t make Ryan clever, it just makes him a more dangerous liar.

    Dispiriting, it is.

    –alopecia

    • Christopher Foxx

      one of the least-innumerate

      I think you may want to drop the “least”. Innumerate means lacking knowledge of math, so least innumerate means least ignorant.

      But you are, of course, absolutely right on the sentiment. Ryan’s “financial genius” doesn’t extend beyond “Cutting taxes good. Hurting people better.”

    • ninjaf

      I think this comes from the “both sides” mentality of the beltway media. Republicans have to have a policy wonk, since Democrats have them. And he is as close as they can get.

      • muselet

        Plus, Paul Ryan is a very talented bullshitter and the Washington press corps is not made up of economists. He can bamboozle them into thinking up is down, black is white and magic asterisks are sound policy.

        –alopecia

  • Scopedog
  • Dread_Pirate_Mathius

    I work on Wall Street, I have an MBA, and an undergraduate degree in economics.

    I do know what all this means.

    And, like the other individuals mentioned in the article, I find the notion to be absolute bullshit.

    • Badgerite

      Correct me if I am wrong, but we are what would be called a volume economy.
      That is an economy based on consumer spending. And most consumers live in the middle and lower class of income. So how does funneling all money to a few people at the top spur anything but wide spread poverty and economic stagnation?

      • ninjaf

        That’s what the magic asterisks are for!

        Republicans: Economic policies brought to you by Underpants Gnomes.

        • Badgerite

          Ah. The Underpants Gnomes Theory of Economic Growth.
          Didn’t the Underpants Gnome win a Nobel Prize or something? (snark)

          • ninjaf

            They would have, except something something George Soros.

          • Badgerite

            🙂

    • Aynwrong

      I don’t believe you. Only R’s work on Wall Street. Everybody knows that. Argle bargle! GEORGE SOROS!!!

      *Kidding of course.*

  • Badgerite

    They should call this the Ayn Rand Tax Plan for the Exceedingly Rich.
    It has one sentence. “Anything that isn’t nailed down is mine and anything that I can pry up isn’t nailed down.” The Ayn Rand Tax Plan for the Exceedingly Rich.