Now that Republicans are in control of the Executive and both Legislative houses, might it be time to address the budget deficit?
Perish the thought. Republicans cannot agree on How or Whether to Pay for Tax Cuts.
A fight is brewing among congressional Republicans over whether a planned tax overhaul should pay for itself.
The plan favored by House Speaker Paul Ryan (R., Wis.) and Senate Majority Leader Mitch McConnell (R., Ky.) aims to be revenue-neutral: Lowering taxes without increasing the deficit—though their math comes with some caveats.
But President Donald Trump hasn’t signed onto that budgetary straitjacket, and some lawmakers are sympathetic to the idea of dumping the revenue-neutral goal.
“Revenue neutrality shouldn’t necessarily be a constraint,” said Sen. Pat Toomey (R., Pa.) “The primary goal should be maximizing growth and thereby increasing the income for Pennsylvania families.”
Rohit Kumar, a former aide to Mr. McConnell who is now at PricewaterhouseCoopers LLP, said revenue neutrality is a useful organizing principle, but “requires some hard policy choices, and it may be that those hard policy choices are harder than undoing the constraint.”
The House hasn’t shown yet how its plan actually adds up, and lawmakers are having trouble building political consensus around the border-adjustment proposal, one of the biggest changes to produce revenue and offset the rate cuts.
Under that plan, companies wouldn’t be able to deduct the cost of imports from their revenue, while exports and other foreign sales would be made free of U.S. taxes. The proposal would operate like a tax on the trade deficit and raise about $1 trillion over a decade, but divides lawmakers and corporations.
If Republicans choose tax cuts that lose revenue in the long run, they will face the Senate’s Byrd Rule, which prevents deficits outside the budget scoring window without 60 votes.
To comply with that rule, they could keep structural changes as permanent law but set some tax rate cuts to expire or snap back to higher levels. They could lengthen the budget window to 15 or 20 years and see if that changes the estimates or lets them delay expiration dates further. They could also pair tax cuts with spending cuts.
Chucking the revenue constraint would make it even harder to get votes from Democrats.
Debt Ceiling Shenanigans
What a hoot!
All of a sudden the Democrats are worried about revenue.
And after eight years of preaching fiscal restraint, once even shutting down parts of government over debt ceiling limits, the Republicans want no part of fiscal cutbacks.
Where are the Republicans on the issue of a debt ceiling now that hey are in control? The answer is “hiding”, even though Automatic Debt Ceiling Hikes Expire March 16.
Treasury Secretary Steven Mnuchin said during his confirmation hearing that he supports increasing the debt limit, and Office of Management and Budget Director Mick Mulvaney said last month that the administration plans to use extraordinary measures as long as possible.
Tax Cut Won’t Pay for Itself
Forget the notion the tax cuts will pay for themselves. The Border Adjustment Tax (BAT), tariffs, and the trade war retaliations of our major trading partners will destroy jobs and slow growth.
I would be more optimistic if Congress would simply lower the corporate tax rate and be done with it, but that seems highly unlikely.
Fiscal Hawk Hypocrites
Meanwhile, the party in power always wants fiscal expansion. The fiscal hawk conservatives have proven to be nothing but a pack of hypocrites now that they are in power.
Mike “Mish” Shedlock