VOL. 41 | NO. 18 | Friday, May 05, 2017
Fiscal discipline? Not now, as GOP pushes tax cuts
WASHINGTON (AP) — Republicans relentlessly complained about big budget deficits during Democratic President Barack Obama's two terms, but now a growing number in the GOP are pushing for deep tax cuts even if they add to the government's $20 trillion debt.
President Donald Trump says he is pushing for "the biggest tax cut in the history of our country," as Congress tries to overhaul the tax code for the first time in more than 30 years.
It won't be easy. Congressional Republicans are divided over concerns about the government's debt, and Senate rules make it difficult to pass deep tax cuts without support from Democrats, something majority Republicans are not actively seeking.
Still, the tax cutters are gaining momentum, even though neither Trump nor Republican leaders in Congress are willing to tackle the government's long-term drivers of debt — Social Security and Medicare.
"If you want to have real tax reform and a robust economy, you have to both reduce taxes and reduce spending," said Rep. Raul Labrador, R-Idaho. "Now, if we're not going to reduce spending, I still want to give families their tax cut."
The push to cut taxes has picked up an important ally in Sen. Orrin Hatch, R-Utah, who chairs the powerful Senate Finance Committee, which has jurisdiction over taxes.
"Franky, I think if we can get a tax reform bill that would stimulate the economy, I don't think it has to be revenue neutral," Hatch said Tuesday.
That's a big difference from the way Hatch talked about deficits under Obama.
"Continued deficits and accumulated debt are a genuine threat to individual liberty, continued prosperity and national security," Hatch said in 2011 after Obama released a budget proposal.
The national debt grew from about $10.6 trillion when Obama took office to nearly $20 trillion when he left. Some of the debt came from new spending in the aftermath of the financial crisis. But much of it was from tax cuts approved under President George W. Bush, two wars waged by Bush in Iraq and Afghanistan and mandatory spending programs initiated decades ago.
Under Obama, the annual budget deficit shrunk to $621 billion last year. That's lower than the budget deficit in Bush's last year in office.
House Republican leaders have been working for years on ways to overhaul the tax code without adding to the budget deficit. Their goal is to make the tax code simpler, fairer and more efficient in an effort to spur economic growth.
Their plan is to lower overall tax rates and offset the lost revenue by reducing the number of exemptions, deductions and credits. In Washington, it's called revenue neutral, meaning the new tax code would generate about the same amount of revenue as the old one.
"We're going for the greatest growth for the greatest number of years," said Rep. Kevin Brady, R-Texas, chairman of the tax-writing House Ways and Means Committee. "That happens when tax reform is bold, when it is balanced within the budget, accounting for economic growth, and when it's built to last, when it's permanent."
This type of tax reform, however, means eliminating popular tax breaks enjoyed by millions of families and businesses. House Republicans and the Trump administration have already called for getting rid of the deduction for state and local taxes, a big tax break that benefits millions, especially people living in Democratic-controlled states with high local taxes such as New York, New Jersey and California.
It gets more complicated.
Republicans are working under a budget maneuver that would allow them to pass a tax bill without Democratic support in the Senate. But they can only use the maneuver, called budget reconciliation, if the tax bill doesn't add to long-term budget deficits.
Otherwise, the bill would have to pass a 60-vote threshold, and Republicans have only 52 senators.
Traditionally, Congress uses a 10-year budget window to measure the effects of tax and spending legislation. That means the tax bill couldn't add to budget deficits in the second decade because those years are outside the budget window.
This is what happened under Bush. Congress passed massive tax cuts for individuals that expired after 10 years. Eventually, Congress made most of the tax cuts permanent, except for some taxes affecting high-income families
However, the budget law doesn't prevent lawmakers from using a longer budget window, such as 20 or 30 years, said Rohit Kumar, a former tax counsel for Senate Majority Leader Mitch McConnell who is now with PricewaterhouseCoopers.
That means congressional Republicans could pass tax cuts that don't expire for 20 or 30 years, leaving future generations of lawmakers to sort it out, Kumar said.
Sen. Pat Toomey, R-Pa., is pushing this strategy.
"It would be a good idea because it would give us a long-term tax cut rather than one that expires after a short time," Toomey said Tuesday.
"If you fix (the tax system) and you create a competitive, rational system, but then it expires in nine or 10 years, it is very difficult for businesses to plan," he added.
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