Jun 26, 2017

Conservatives say they're gaining momentum for deficit-growing tax cuts

J. Scott Applewhite / AP

Mark Meadows, the chairman of the ultra-conservative House Freedom Caucus tells me there's "a growing acceptance among conservatives to expand the budget window to 20 years that would allow for more robust tax cuts."

"Providing for tax cuts over a 20-year period is about as permanent as you can find on Capitol Hill," Meadows told me on Monday.

What he means: Meadows is referring to a non-traditional idea that's gaining momentum in conservative circles — to change budget rules so that tax cuts that add to the deficit can last for 20 years or longer, rather than expiring after 10 years. If Republicans do this, they'll be able to cut taxes dramatically without worrying about raising new revenue to "pay for" the cuts for at least two decades. By then, their theory goes, the economy will be roaring from a streak of economic growth, and politicians will likely do another round of tax reform.

Why this matters: Though Paul Ryan still insists tax reform needs to be revenue neutral, his preferred method to pay for tax cuts is politically dead. The border adjustment tax — which would raise more than $1 trillion over ten years by raising taxes on imports — has no hope of passing the Senate or being signed by the President.

Conservatives like Republican Sen. Pat Toomey believe that leaves two broad alternatives:

  1. "Really weak tax reform" — i.e. cutting taxes but getting nowhere close to Trump's promise of a 15 percent corporate rate, and then removing some deductions so these cuts don't increase the deficit.
  2. Cut taxes dramatically, and either keep the current window — meaning they would expire after 10 years — or extend that window to 20 or 25 years. But Toomey says letting corporate tax cuts expire at the end of 10 years is unworkable. It wouldn't give businesses enough certainty "to make the kind of decisions we want them to make in response to a better tax code."

Toomey says the Trump Administration is "seriously looking at" the window-extending idea. "They like it," he told reporters last Thursday. "They get this. [Budget Director] Mick Mulvaney said the same thing." As Bloomberg's Sahil Kapur has written, other supporters of the idea include Senate Finance Chairman Orrin Hatch..."as well as anti-tax activist Grover Norquist and conservative groups such as the Club For Growth."

  • Toomey added that the administration's two point-men on tax reform, Treasury Secretary Steven Mnuchin and Trump's top economic advisor Gary Cohn, are "very open to this."
  • "They get the logic, they understand the dilemma that we face, they know that the President has been advocating for a net tax cut and they're fine with that...so how else do you get that done in a way that also reforms the corporate code?"
  • "If the consensus of the Republican conference in both bodies were to go here, I don't see why leadership would object," he added.

Reality check: A lot of Republicans remain uncomfortable with an approach that extends deficits as far as the eye can see. It won't be hard for their political opponents to paint the idea as fiscally irresponsible.

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