'Tax Reform Is Hard. Keeping Tax Reform Is Harder': Highlights from the House Tax Cuts Hearing
The House Ways and Means Committee held a three-hour hearing Wednesday on the effects of the Republican tax overhaul. We tuned in so you wouldn’t have to.
As you might have expected, the hearing was mostly an opportunity for Republicans and Democrats to exercise their messaging on the benefits or dangers of the new law, and for the experts testifying to disagree whether the gains from the law would outweigh the costs. But there was also some consensus that it’s still very early to try to gauge the effects of the law that was signed into effect by President Trump less than five months ago.
“I would emphasize that, despite all the high-quality economic research that’s been done, never before has the best economy on the planet moved from a worldwide system of taxation to a territorial system of taxation. There is no precedent,” said Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office. “And in that way we do not really know the magnitude and the pace at which a lot of these [effects] will occur.”
Some key quotes from the hearing:
Rep. Richard Neal (D-MA), ranking Democrat on the committee: “This was not tax reform. This was a tax cut for people at the top. The problem that Republicans hope Americans overlook is the law’s devastating impact on your health care. In search of revenue to pay for corporate cuts, the GOP upended the health care system, causing 13 million Americans to lose their coverage. For others, health insurance premiums will spike by at least 10 percent, which translates to about $2,000 a year of extra costs per year for a family of four. … These new health expenses will dwarf any tax cuts promised to American families. … The fiscal irresponsibility of their law is stunning. Over the next 10 years they add $2.3 trillion to the nation’s debt to finance tax cuts for people at the top – all borrowed money. … When the bill comes due, Republicans intend to cut funding for programs like Medicare, Medicaid and Social Security.”
David Farr, chairman and CEO of Emerson, and chairman of the National Association of Manufacturers: “We recently polled the NAM members, and the responses heard back from them on the tax reform are very significant and extremely positive: 86 percent report that they’ve already planned to increase investments, 77 percent report that they’ve already planned to increase hiring, 72 percent report that they’ve already planned to increase wages or benefits.”
Holtz-Eakin: “No, tax cuts don’t pay for themselves. If they did there would be no additional debt from the Tax Cuts and Jobs Act, and there is. The question is, is it worth it? Will the growth and the incentives that come from it be worth the additional federal debt. My judgment on that was yes. Reasonable people can disagree. … When we went into this exercise, there was $10 trillion in debt in the federal baseline, before the Tax Cuts and Jobs Act. There was a dangerous rise in the debt-to-GDP ratio. It was my belief, and continues to be my belief, that those problems would not be addressed in a stagnant, slow-growth economy. Those are enormously important problems, and we needed to get growth going so we can also take them on.”
“Quite frankly, it’s not going to be possible to hold onto this beneficial tax reform if you don’t get the spending side under control. Tax reform is hard. Keeping tax reform is harder, and the growth consequences of not fixing the debt outlook are entirely negative and will overwhelm what you’ve done so far.”
Steven Rattner: "We would probably all agree that increases in our national debt of these kinds of orders of magnitude have a number of deleterious effects. First, they push interest rates up. … That not only increases the cost of borrowing for the federal government, it increases the cost of borrowing for private corporations whose debt is priced off of government paper. Secondly, it creates additional pressure on spending inside the budget to the extent anyone is actually trying to control the deficit. … And thirdly, and in my view perhaps most importantly, it’s a terrible intergenerational transfer. We are simply leaving for our children additional trillions of dollars of debt that at some point are going to have to be dealt with, or there are going to have to be very, very substantial cuts in benefits, including programs like Social Security and Medicare, in order to reckon with that.”
The Hidden Tax Bracket in the GOP Plan
Politico’s Danny Vinik: “Thanks to a quirky proposed surcharge, Americans who earn more than $1 million in taxable income would trigger an extra 6 percent tax on the next $200,000 they earn—a complicated change that effectively creates a new, unannounced tax bracket of 45.6 percent. … The new rate stems from a provision in the bill intended to help the government recover, from the very wealthy, some of the benefits that lower-income taxpayers enjoy. … After the first $1 million in taxable income, the government would impose a 6 percent surcharge on every dollar earned, until it made up for the tax benefits that the rich receive from the low tax rate on that first $45,000. That surcharge remains until the government has clawed back the full $12,420, which would occur at about $1.2 million in taxable income. At that point, the surcharge disappears and the top tax rate drops back to 39.6 percent.”
Vinik writes that the surcharge would have affected more than 400,000 tax filers in 2015, according to IRS data, and that it could raise more than $50 billion in revenue over a decade. At a Politico event Friday, House Ways and Means Chairman Kevin Brady said the surcharge, sometimes called a bubble rate, was included to try to drive more middle-class tax relief.
Read the Republican Tax Bill, Plus the Talking Points to Sell the Plan
House Republicans on Thursday released a 429-page draft of their "Tax Cuts and Jobs Act." Read the bill below, or scroll down for the House summary or a more digestible GOP list of highlights.
Another Analysis Finds GOP Tax Plan Would Balloon Deficits
A study by the University of Pennsylvania’s Wharton School, using the Penn Wharton Budget Model (PWBM), finds that three modeled versions of the plan would raise deficits by up to $3.5 trillion over 10 years and as much as $12.2 trillion by 2040. The lowest-cost plan modeled in the study — a version that would tax corporate income at 25 percent instead of the GOP’s proposed 20 percent and pass-through income at 28 percent instead of 25 percent, among a host of other assumptions and tweaks — would lose $1.5 trillion over 10 years, or $1 trillion after accounting for economic feedback effects. (The budget adopted by Republicans last week allows for up to $1.5 trillion to the added to the deficit.) The study also found that workers’ wages would increase by about 1.4 percent over a decade, far shy of the estimated benefits being claimed by the White House.
The Budget Vote May Depend on a SALT Deal
House GOP members concerned about the proposal to repeal the deduction for state and local taxes are supposed to meet with party leaders Wednesday evening. They’re reportedly looking to reach a compromise deal to keep the tax break in some form — and the budget vote might be at stake, Bloomberg reports: “House Republicans hold 239 seats and need 217 votes to adopt the budget — a critical step to passing tax changes without Democratic support. That means 23 defections could sink the budget resolution — assuming no absences or Democratic support.”
Can Trump Bring Democrats Along on Taxes?
Although Republicans are prepared to go it alone on tax reform, President Trump suggested creating a bipartisan working group on the topic during a Wednesday meeting with senators from both parties. Some senators were open to the idea, but it doesn’t look like Republicans have much interest in slowing down the process with in-depth negotiations. “I don’t really personally see the benefit of creating additional structure. I think we’ve got all the tools we need,” said Sen. John Cornyn (R-TX), who attended the meeting, according to Politico. Democrats appear skeptical, too. Sen. Ron Wyden (D-OR) said he told Trump that the distance between what Republicans were saying about their plan and what it actually does is a serious problem.