Believe it or not, not all of Washington is captivated either by the question of President Trump and his advisors’ ties to Russia nor by the firing of former FBI Director James Comey.
As hard as it may be to believe, work is getting done on some important business, including tax reform, and over at the White House, they’ve been busy drafting Trump’s first budget, which is due to be unveiled next week.
While the brouhaha involving the firing of Comey may make it harder to advance key parts of President Trump’s agenda, work is being done on tax reform. Key elements are lowering corporate tax rates, lowering individual tax rates and “broadening the base” by eliminating a bunch of deductions – just about everything, it seems, except mortgage interest and charitable deductions.
So what are the odds of this getting done? Anheuser-Busch teamed up with Politico to host a conversation on that topic.
A think-tank panel involving Jason Furman, Senior Fellow, Peterson Institute for International Economics; Maya MacGuineas, President, Committee for a Responsible Federal Budget, and James Pethokoukis, DeWitt Wallace Fellow, American Enterprise Institute, pretty much agreed that tax reform will be a lot more difficult than simply cutting taxes. And that’s what they expect, at least for this year: Tax cuts, but no real reform. Reform might come next year. Might come.
Assuming Congress wants economic growth, why would it hold back on tax reform? Furman suggested that rather than hanging economic growth on tax reform, a better approach would be to view growth as a result of a package of changes, involving not just taxes but also infrastructure, education, etc.
MacGuineas responded nothing will create sustained economic growth of more than a few points. As for dynamic scoring, advocated by conservatives, she said unless spending is cut, debt will grow, and that debt “will have a negative effect on the economy. You can’t do it without entitlement reform,” she said.
As for the border adjustment tax, Furman said it was “too risky in the current environment.” That would be good news for importers, including major retailers.
Any tax reform plan will result in “huge pushback” from each beneficiary of “tax expenditures,” said MacGuineas, who added: “We don’t do anything hard anymore. We give away tax cuts.”
The panel agreed that full expensing of business purchases would be a good thing, as long as the interest deduction was eliminated. Interest on existing debt should be eliminated, they added.
They also agreed that there’s more “bang for the buck” from corporate tax cuts than for individual tax cuts.
Rep. Kevin Brady (R-Tex.), chairman of the House Ways & Means Committee, wasn’t quite as pessimistic. “We can get this done,” he insisted. “But there will be a moment when Presidential leadership will be key. Right now, (Treasury Secretary Steven) Mnuchin and (Gary) Cohn, who heads President Trump’s Council of Economic Advisors, “are working on the details.”
As for the border adjustment tax, Brady said the question is “whether we want a tax code that favors foreign products and encourages people to move corporations overseas. We can’t do the border adjustment tax without real tax reform,” he said.
As for timing, “Our responsibility is to deliver this year on bold, permanent tax reform.”
Brady hinted at what deductions would survive tax reform. “The hardest individual deductions to get rid of are the mortgage interest deduction, extreme medical expenses and state and local tax deductions