'Tax Reform Is Hard. Keeping Tax Reform Is Harder': Highlights from the House Tax Cuts Hearing

'Tax Reform Is Hard. Keeping Tax Reform Is Harder': Highlights from the House Tax Cuts Hearing

Steven Rattner, chairman of Willett Advisors LLC, attends the Bloomberg Global Business Forum in New York
BRENDAN MCDERMID
By Yuval Rosenberg

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.”

About 90% of Trump Counties Have Received Trade War Farm Aid

FILE PHOTO: A combine drives over stalks of soft red winter wheat during the harvest on a farm in Dixon, Illinois
Jim Young
By The Fiscal Times Staff

President Trump won more than 2,600 of the nation’s 3,000-plus counties in the 2016 election, and residents in nearly 90% of those counties – or more than 2,300 – have received some level of aid from the administration’s Market Facilitation Program, a $16 billion effort that compensates farmers for losses incurred as a result of Trump’s trade war with China.

Drawing on a new report from the Environmental Working Group, The Washington Post’s Philip Bump says the data “show the extent to which [the farm] subsidies overlap with Trump’s base of political support.”

To be fair, about 80% of the counties Hillary Clinton won also received some degree of aid, Bump says, but there are many fewer of them, given the concentration of her supporters in urban areas.

Overall, residents in more than 2,600 counties in the U.S. have received payments from the farm aid program, with the heaviest concentration in the Midwest.

Number of the Day: $1.57

iStockphoto
By The Fiscal Times Staff

A new study from the Bipartisan Policy Center says that Medicare would save $1.57 for every dollar it spends delivering healthy food to elderly beneficiaries who have recently been discharged from the hospital. The savings would come from a reduction in the rate of readmissions to the hospital for patients suffering from a wide range of common ailments, including rheumatoid arthritis, congestive heart failure, diabetes and emphysema.

“If you were going to offer meals to every Medicare beneficiary, it would be cost-prohibitive,” said BPC’s Katherine Hayes. “By targeting it to a very, very sick group of people is how we were able to show there could be savings.”

Budget Deal Moving Ahead, Despite Outrage on the Right

A cyclist passes the U.S. Capitol in Washington
CHRIS WATTIE
By Michael Rainey

The bipartisan deal to suspend the debt ceiling and increase federal spending over the next two years will get a vote in the House on Thursday, House Majority Leader Steny Hoyer (D-MD) said late Tuesday. Leaders in both parties have expressed confidence that the bill will pass before lawmakers leave town for their August recess.

"We're gonna pass it," Hoyer told reporters. "I think we'll get a good number [of votes]. I don't know if it's gonna be huge, but we're gonna pass it."

President Trump announced that he backs the deal, removing one possible hurdle for the bill. “Budget Deal gives great victories to our Military and Vets, keeps out Democrat poison pill riders. Republicans and Democrats in Congress need to act ASAP and support this deal,” he tweeted Tuesday evening.

Despite widespread agreement that the bill will pass, however, not everyone is on board.

Grumbles from the left: Some progressive Democrats have been critical of the deal, portraying it as too easy on Republicans. Worried that the agreement could set up a budget crisis in 2021, Rep. Ro Khanna (D-CA) said he was “concerned that it was a two-year deal. Why not a one year deal?... It seems like it’s basically handcuffing the next president.” Other liberals, noting that Democratic leaders have agreed to avoid “poison pill” riders on controversial issues such as abortion and funding for the border wall in the funding bills that must pass this fall, lamented their loss of leverage in those negotiations.

Outrage on the right: Resistance to the deal was more pronounced on the right, with the hardline House Freedom Caucus announcing Tuesday that it would not support the bill due to concerns about the growing national debt. “Our country is undeniably headed down a path of fiscal insolvency and rapidly approaching $23 trillion in debt. … All sides should go back to the drawing board and work around the clock, canceling recess if necessary, on a responsible budget agreement that serves American taxpayers better—not a $323 billion spending frenzy with no serious offsets,” the 31-member group said in a statement.

The deficit hawks at the Committee for Responsible Federal published “Five Reasons to Oppose the Budget Deal,” which include its purported $1.7 trillion cost over 10 years. CRFB noted that the agreement would increase discretionary spending by 21 percent during President Trump’s first term, pushing such spending to near-record levels.

Sen. John Kennedy (R-LA) was more colorful in his criticism, saying, “You don’t have to be Euclid to understand the math here. We’re like Thelma and Louise in that car headed toward the cliff.” Nevertheless, Kennedy said he would consider supporting the deal.

Is the deficit hawk dead? The budget deal represents “the culmination of years of slipping fiscal discipline in Washington,” said Robert Costa and Mike DeBonis of The Washington Post, and it highlights the declining influence of fiscal conservatives in the capital, at least as far as policy is concerned. Sen. James Lankford (R-OK) said the Republican Party’s credibility on fiscal restraint is “long gone.”

Although it may be too early to declare the fiscal hawk extinct – plenty of critics say the bird will return as soon as there’s a Democratic president – it certainly seems to be in ill health. As the University of Virginia's Larry Sabato said Wednesday: “A battered bird has been named to the list of endangered species. The ‘deficit hawk’ is on the road to extinction. Rarely spotted around Washington, D.C., the deficit hawk’s last remaining habitat is found in some state capitals.”

Some Republicans said that fiscal conservatism was never really a core Republican value, dating back to President Reagan’s tax-cut-and-spend policies, and that Paul Ryan’s emphasis on fiscal issues was an aberration. “It was never the party of Paul Ryan,” former House Speaker Newt Gingrich told the Post. “He’s a brilliant guy, but he filled a policy gap. The reality here is that Republicans were never going to get spending cuts with Speaker Pelosi running the House, and they didn’t want an economic meltdown or shutdown this summer.”

Is the whole debate missing the point? William Gale of the Brookings Institution, who served on President George H.W. Bush’s Council of Economic Advisers, said he wasn’t sure why the budget deal was producing so much hostility, since it basically maintains the status quo and – more importantly – is focused solely on discretionary spending. “There *is* a long-term budget issue,” Gale tweeted Tuesday, “but cutting [discretionary spending] is not the way to go.”

Instead, Gale says that any serious fiscal plan must focus on the mandatory side of the ledger, where the rapidly increasing costs of health care and retirement are straining against revenues reduced by repeated rounds of tax cuts. Gale recommends a combination of entitlement reductions and revenue increases – a standard mix of policy options that faces an uncertain future, with well-entrenched interest groups standing opposed to movement in either direction.

N&V2

By The Fiscal Times Staff

Here's what we have our eye on today:

NEWS
  • Trump Wants a ‘Phase Two’ of Tax Cuts  – CNBC
  • Congress Has Until March 23 to Fund the Government. Three Ways This Could Go – Vox
  • The First Target on Drug Prices: Pharmacy Benefit Managers – Axios

News & Views

By The Fiscal Times Staff

Here's what we have our eye on today:

NEWS

VIEWS