Key Senators Reach Tentative Budget Deal on Taxes: Corker

September 19, 2017 01:25 PM
 
Tax Reform

(Bloomberg) -- Two Republican members of the Senate Budget Committee reached a tentative deal to craft a budget that would allow “headroom” for a significant tax cut, Senator Bob Corker said -- though he didn’t specify the amount of that cut.

Corker of Tennessee and Senator Pat Toomey of Pennsylvania had disagreed over allowing a budget that would add to the deficit. On Tuesday, they hammered out a potential path forward with Senate Majority Leader Mitch McConnell, Corker said. The deal was expected to be shared more widely Tuesday afternoon.

Corker, a self-described deficit hawk, said he will still insist that any eventual tax bill pay for its cuts through economic growth, as determined by valid economic modeling. His remarks came after another Republican member of the budget panel, Senator Ron Johnson, said the group is considering a budget that would allow for $1.5 trillion in tax cuts that would add to the deficit on a so-called “static” basis over the next 10 years.

If the panel follows that course, at least some of the cuts in any tax-overhaul bill that follows the budget may have to be only temporary. That’s because Senate leaders want to use a budget procedure that would protect the tax legislation from a Democratic filibuster -- and that procedure requires that the legislation can’t add to the long-term deficit.

The notion would represent a pronounced departure from McConnell’s position earlier this year. McConnell said during a Bloomberg interview in May that a tax overhaul can’t add to the nation’s “alarming” debt.

Corker said Tuesday afternoon that Republicans have “potentially gotten to a very good place” in terms of the budget -- a necessary first step in their push to overhaul the U.S. tax code. “I’m not going to say what the number is yet until we talk to our members,” he said.

Johnson of Wisconsin said $1.5 trillion is the minimum amount he’d like to see, and he’d consider doing as much as $3 trillion. That would make it easier for the GOP to create a tax bill with cuts that aren’t completely offset by revenue raisers or the elimination of deductions. Johnson said the panel’s numbers don’t take into account the economic growth that would result from tax changes -- and he believes the cuts would stimulate enough growth to pay for themselves.

Johnson and others advocate the use of “dynamic scoring” -- a method that considers the effects of any changes on the larger economy -- as opposed to “static scoring,” which examines only the changes themselves. Economists disagree on the best way to shape dynamic scoring models.

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“There’s a spectrum of opinion inside our conference,” Johnson told reporters Tuesday. “Why do tax reform if you are not getting a lot of economic growth?”

A Senate Republican aide said that the budget is expected “sooner rather than later,” and discussions are ongoing among the committee and the wider conference.

Johnson said that part of the $1.5 trillion in static revenue cuts, as compared to the Congressional Budget Office baseline, would be due to the committee assuming that $450 billion in expiring tax breaks are extended. CBO’s baseline assumes the tax breaks actually do expire, even though Congress regularly extends them. Johnson said assuming the tax breaks are extended better represents “reality.”

The arguments being made to allow for $1.5 trillion of tax cuts -- dynamic scoring and current policy adjustments -- are “disingenuous” and can “at best” only account for a small fraction of the cut, according to Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

“The President and members of Congress have spent years warning of our large and growing national debt and have said their goal was to pursue tax reform that doesn’t make that debt worse,” MacGuineas said in a statement. “With our debt at record levels and set to rise for the foreseeable future, adding another $1.5 trillion tax cut to the debt would be remarkably irresponsible.”

First Step

Republicans have to agree on a 2018 budget resolution -- a necessary step to unlock the procedural maneuver they intend to use to pass the tax plan with 50 votes in the Senate. The party controls only 52 of the chamber’s 100 votes. White House advisers and congressional leaders have promised a tax framework outlining more details the week of Sept. 25, which may help to assuage members of the conservative House Freedom Caucus, who have said they won’t vote to pass a budget out of the House until they get more details on tax changes.

Senator Mike Crapo of Idaho, a member of the tax-writing Finance Committee, said Monday he wants a tax cut that’s “as big as we can get” within the budget window, though he declined to put a number on it. He said it “depends on what kind of dynamic impact a tax relief package can have, but I want it to be as big and bold as we can get.”

Another committee member, Senator Bernie Sanders, a Vermont independent who caucuses with the Democrats, said senators should discuss who’d get the benefits of a tax cut before discussing its size.

“My strong guess is that Republicans want to give a tax cut to billionaires which is exactly what we don’t need,” Sanders said in an interview.

©2017 Bloomberg L.P.

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