'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.”
Deficit Hits $738.6 Billion in First 8 Months of Fiscal Year
The U.S. budget deficit grew to $738.6 billion in the first eight months of the current fiscal year – an increase of $206 billion, or 38.8%, over the deficit recorded during the same period a year earlier. Bloomberg’s Sarah McGregor notes that the big increase occurred despite a jump in tariff revenues, which have nearly doubled to $44.9 billion so far this fiscal year. But that increase, which contributed to an overall increase in revenues of 2.3%, was not enough to make up for the reduced revenues from the Republican tax cuts and a 9.3% increase in government spending.
Tweet of the Day: Revenues or Spending?
Rep. Kevin Brady (R-TX), ranking member of the House Ways and Means Committee and one of the authors of the 2017 Republican tax overhaul, told The Washington Post’s Heather Long Tuesday that the budget deficit is driven by excess spending, not a shortfall in revenues in the wake of the tax cuts. The Wall Street Journal’s Kate Davidson provided some inconvenient facts for Brady’s claim in a tweet, pointing out that government revenues as a share of GDP have fallen significantly since 2015, while spending has remained more or less constant.
Chart of the Day: The Decline in IRS Audits
Reviewing the recent annual report on tax statistics from the IRS, Robert Weinberger of the Tax Policy Center says it “tells a story of shrinking staff, fewer audits, and less customer service.” The agency had 22% fewer personnel in 2018 than it did in 2010, and its enforcement budget has fallen by nearly $1 billion, Weinberger writes. One obvious effect of the budget cuts has been a sharp reduction in the number of audits the agency has performed annually, which you can see in the chart below.
Number of the Day: $102 Million
President Trump’s golf playing has cost taxpayers $102 million in extra travel and security expenses, according to an analysis by the left-leaning HuffPost news site.
“The $102 million total to date spent on Trump’s presidential golfing represents 255 times the annual presidential salary he volunteered not to take. It is more than three times the cost of special counsel Robert Mueller’s investigation that Trump continually complains about. It would fund for six years the Special Olympics program that Trump’s proposed budget had originally cut to save money,” HuffPost’s S.V. Date writes.
Date says the White House did not respond to HuffPost’s requests for comment.
Americans See Tax-Paying as a Duty
The IRS may not be conducting audits like it used to, but according to the agency’s Data Book for 2018, most Americans still believe it’s not acceptable to cheat on your taxes. About 67% of respondents to an IRS opinion survey “completely agree” that it’s a civic duty to pay “a fair share of taxes,” and another 26% “mostly agree,” bringing the total in agreement to over 90%. Accounting Today says that attitude has been pretty consistent over the last decade.
