Justin Amash’s Twitter Mic Drop In Defense Of Tax Reform

Justin Amash, a Republican congressman from Maine, isn’t typically the one you’d expect to drop the mic on Twitter, but he did so over the weekend. NBC News correspondent Kasie Hunt alleged that tax reform was responsible for the exploding deficit and Rep. Amash set the record straight in less than 180 characters.

On Sunday, Hunt tweeted an observation about Acting White House Chief of Staff Mick Mulvaney’s conversation with CNN’s Jake Tapper in which Mulvaney said that the $2 trillion deficit increase under President Trump required Democratic votes. Calling the comment “an outright falsehood,” Hunt added, “They used budget reconciliation to pass tax reform so they wouldn’t need Democrats.”

https://twitter.com/kasie/status/1081947628265443329

The problem for Hunt is that tax reform did not run up the deficit as Amash pointed out. “Do you believe tax reform caused a $2 trillion debt increase in one year?” he tweeted. “Tax reform is roughly $1.5 trillion over 10 years. The debt increase is almost entirely due to bipartisan discretionary spending increases and bipartisan apathy toward ever-increasing mandatory spending.”

https://twitter.com/justinamash/status/1082010264642428929

Is this an example of he said/she said or is one of the two definitively right?

To settle the dispute, we only need to look back a few months to the end of the federal fiscal year in September. At that time The Resurgent described how the deficit had risen to the highest level in six years:

“Total outlays for 2018 were $4.108 trillion compared to $3.981 trillion in 2017. The spending increases were driven by rising interest costs paid on a greater amount of federal debt as well as increased military spending, which rose by six percent, and Social Security spending which increased by four percent.”

Amash is correct that the majority of the increase in the deficit was due to increased spending. Some of these costs were mandatory spending which was originally authorized by both Democrats and Republicans. The increased cost of interest on the national debt and the rising cost of entitlements like Social Security were bipartisan commitments.

So was the increase in defense spending. The Bipartisan Budget Act of 2018 increased military spending to $716 billion, an increase that President Trump celebrated as the “most amount ever.” As its name suggests, this spending bill was passed with broad support from both parties.

This isn’t to say that tax reform has no part in the deficit increases, however. Amash’s use of the qualifier “almost entirely” suggest that he agrees that tax reform did play a role. There are two components to the deficit, spending and revenue, and both were factors in the deficit.

As we discussed back in October, federal revenue for the year was almost flat despite the booming economy:

“According to Treasury Department statistics, flat federal revenues were part of the deficit problem. Total federal receipts were $3.329 trillion in 2018compared with $3.316 trillion in 2017. FY 2018 included three months – October, November and December 2017 – at higher tax rates. This means that the 2019 revenue picture looks even worse.”

So, the bottom line is that revenue for 2018 did not increase while spending did. Because revenue did not go down, it isn’t accurate to say that tax reform drove the increase in the deficit. It is fair to say, however, that without decreasing corporate tax rates, there would have been more revenue and the deficit would have been smaller. In fact, even as the economy boomed, tax revenues from businesses fell by more than 30 percent. Still, if spending had not increased, the deficit would not have increased.

It’s true that cutting corporate tax rates to make them more competitive with the rest of the world was the express purpose of tax reform. It’s also true that without tax reform there might have been a downturn rather than an economic boom, especially considering President Trump’s war on trade. The loss of tax revenue, which was retained by businesses and used by many for capital investments, was a driving factor in this year’s economic growth.

The big question is whether federal revenues will recover in coming years or whether the lost tax receipts will be a bigger driver of the deficit in the future. The conservative gamble is that revenue will be replaced by economic growth. If the government takes a smaller slice of a bigger pie, it will theoretically get the same total amount of pie, if not more.

The problem for conservatives in the Trump era is that the president’s trade policy is at odds with his tax policy. While tax reform let businesses keep more of their own revenues, tariffs and trade restrictions mean that many businesses will have fewer revenues to keep in the first place.

Amash is absolutely correct that spending remains the biggest problem, however. The ongoing shutdown illustrates that about three-quarters of the federal government is on autopilot and does not require appropriations from Congress. It is entitlement spending that is breaking the federal budget.

Meanwhile, neither party seems concerned with the deficit. Where the Republican Party of the Obama era held a hard line on spending, current Republicans have forced a shutdown to because they don’t think the government is spending enough.

Flat Revenues And Increased Spending Boost Deficit To Highest Level In Six Years

The economy boomed in the three quarters that followed last year’s Republican tax reform, but economic news has become more mixed of late with a topsy-turvy stock market and Mr. Trump’s tariff war beginning to affect bottom lines and employment. Now comes more news about the deficit that should rankle any fiscal conservatives who remain in Congress or the country at large.

The fiscal year for the US government ended in September and the figures on the federal budget deficit are not good. In fact, even though the US economy is booming, the deficit is the largest deficit run by the government in six years. The deficit for the 2018 fiscal year was $779 billion, a 17 percent increase over the $666 billion deficit in fiscal 2017. The last time the deficit was higher was in 2012 when Barack Obama presided over a deficit of more than a trillion dollars.

The deficit is the difference between what the federal government spends and what it earns. When the federal government spends more than it receives in revenues, as it has every year since 1960 (with the exception of 1998), it must borrow the difference. Each annual deficit is added to the mountain of federal debt which currently stands at more than $21 trillion.

According to Treasury Department statistics, flat federal revenues were part of the deficit problem. Total federal receipts were $3.329 trillion in 2018compared with $3.316 trillion in 2017. FY 2018 included three months – October, November and December 2017 – at higher tax rates. This means that the 2019 revenue picture looks even worse.

Under tax reform, withholding was lowered in February for individual taxpayers. Despite this, tax receipts from individuals increased by one percent. Tax payments by businesses fell more than 30 percent for the year, however.

Republicans argue that the tax reform is fueling economic growth, which will eventually lead to higher tax revenues. Nevertheless, Kevin Hassett, chairman of the Council of Economic Advisers, admits that spending and the deficit are big problems.

“The deficit is absolutely higher than anyone would like,” Hassett told Bloomberg last week. “As you watch our next budget come out — and you’ll start to see things in the next few weeks — then you’ll see a much more aggressive stance” on spending issues.

It is perhaps ironic that the Republican deficit hawks would preside over a blowout in the deficit. It is unsurprising, however. Historically, the only thing the parties have been able to agree on is borrowing and spending at ever higher levels and the problem seems to get worse when one party controls both Congress and the White House.

Regardless of the outcome of the election, the deficit problem seems unlikely to change any time soon. Unless federal revenues can be increased or spending can be cut, the 2019 federal deficit is forecast to be on the wrong side of a trillion dollars once again.

Originally published on October 16, 2018

Will John McCain Kill Tax Reform?

Fresh off getting its butt kicked in Virginia on Tuesday night, I warned the GOP that its defeat had less to do with the unpopularity of Donald Trump and more to do with the Senate’s utter inability to move anything that resembles a conservative agenda forward.  Their last big failure came courtesy of Susan Collins, Lisa Murkowski and John McCain, who torpedoed Obamacare repeal even after voting for it repeatedly while Barack Obama was president.  Now it seems that the World’s Greatest Deliberative Potty has moved on to strangling tax reform in the cradle, and guess who’s hands are doing the dirty work again?

As you might expect, Collins is also back on board to sabotage the GOP’s one last shot at redemption because she thinks it’s unconscionable that people shouln’t have to turn over half of their estates just because they kick the bucket.  Joining the list of usual suspects is Bob Corker, who after announcing his retirement from the Senate is in full kiss-my-ass mode and figures he might as well give Trump the finger on his way out.

Those two plus McCain equals three, which means only 49 GOP votes left—and no tax reform for you.

McCain is ostensibly applying the bipartisan standard, in which he says he can’t in good conscience vote for something that doesn’t have at least some Democrat support.  Would that the Democrats had paid him the same courtesy when they shoved Obamacare down the country’s throat without a single Republican vote.  It doesn’t really matter, though, because McCain doesn’t mean a word of it.  If he did, he would have voted for a clean repeal on principle, so that Democrats and Republicans could then craft a truly bipartisan solution for health care.  Instead, he’s content to saddle the country with an unsustainable  program that is causing real hurt for the middle class.

The same goes for taxes.  What we have right now is a hopelessly complicated system riddled with so many special interest carve outs and favors that nobody can possibly understand it, which also makes American business less competitive and incentivizes them to park mounds of cash overseas.  Reforming that system could bring that money back and unleash the power of the American economy, while giving real relief to people who haven’t seen their real wages rise in years.  As an added bonus, it would also rally voters back to the GOP and prove that it can actually get things done.

Instead, McCain would rather stick a finger in the eye of the president just because he can.

What he seems to forget—or maybe McCain just doesn’t care—is that there are millions of us out here in the country who will have to pay the price for his vindictiveness.  The GOP will also suffer—because if they fail yet again, it’s a virtual guarantee that what happened on Tuesday will repeat itself on a national scale.

Then again, maybe that’s all part of the plan.  Maybe the establishment is content with seeing the GOP majority wiped out, just so they can halt the Trump agenda and show him who’s really boss.  And if a Dem-controlled House votes to impeach him, so much the better.  That’s what an outsider gets for daring to shake up the Washington status quo.

The swamp will not be so easily drained.

BREAKING: GOP Tax Plan Is Massive Overhaul Of Tax Code

Republicans have finally released their proposal for tax reform. The bill includes dramatic changes to the current tax code that, if enacted, will be largest overhaul of the tax system since the Reagan era.

The new plan maintains the top individual tax rate at 39.6 percent per Politico, but would reduce the corporate tax rate to 20 percent. New individual tax brackets of 12, 25 and 35 percent would be created. Income levels for these brackets are not yet available.

The plan doubles the standard deduction and increases the child tax credit to $1,600. The exemption for the estate tax would be doubled and the estate tax would be repealed after six years. The plan also keeps the popular retirement savings vehicle, the 401(k) account, which some Republicans had hinted could be eliminated.

The plan’s treatment of the mortgage interest deduction is sure to be controversial. The bill would limit this popular deduction to newly purchased homes less than $500,000. Realtor associations are already gearing up to oppose this change.

Republicans also maintained the deduction for state and local taxes. The new plan allows taxpayers to write off up to $10,000 in state and local property taxes, which critics say subsidizes states with high tax levels. Republicans from high tax states sought to preserve this deduction, but the limit is less than property taxes in many blue states.

The tax rate cuts would be offset by the elimination of targeted tax loopholes that favor certain industries and activities. The details of the loopholes to be closed are not yet available.

There are other questions that have yet to be answered as well. There was no clear indication on whether the tax rate cuts would be permanent or have a sunset clause as the 2001 Bush tax cuts did.

The bill also reportedly contains elements to discourage corporations from relocating to other countries. These details also have yet to be revealed.

There was also no word on whether the border adjustment, a tariff on imports, was part of the final plan. Tim Phillips, the president of Americans For Prosperity, had previously warned against the import tax, saying, “We strongly oppose adding a new tax that would raise prices on everyday goods while disproportionally hurting the poor and middle class.”

A weakness of the bill is the failure to lower the top tax rate. While cutting taxes for the wealthy is politically unpopular, per OMB Director Mick Mulvaney the top 20 percent of taxpayers pay 95 percent of the taxes. These taxpayers will benefit from rate cuts to lower brackets, but a cut in the top rate would also be beneficial.

Now that the Republican tax plan is written, the next step is to sell it to the country. Democrat disinformation is already being used to attack the reform proposal with the result that Americans oppose the plan out of the gate by 35-25 percent in a new NBC News  poll. The good news is that almost 40 percent have not made up their minds.

If Republicans can unite and if Donald Trump can stay focused on the issue at hand, tax reform may turn out to be the first real GOP legislative victory of the Trump era. Republicans need this win badly.

Tax Reform Bill Delayed As GOP Squabbles

The Republican tax reform bill was supposed to be unveiled today, but there is one little problem: It isn’t written yet. The House Ways and Means Committee was forced to delay the release of the bill until Thursday to allow the committee members another day to negotiate details of the proposed legislation.

“Ways and means committee members met tonight to discuss the work we are doing on pro-growth tax reform. In consultation with President Trump and our leadership team, we have decided to release the bill text on Thursday,” Ways and Means Chairman Kevin Brady (R-Texas) announced in a statement detailed on CNN. “We are pleased with the progress we are making and we remain on schedule to take action and approve a bill at our Committee beginning next week.”

Republicans have few legislative victories to show for their control of Congress and the White House. Divisions within the party led to the defeat of several attempts to reform the Affordable Care Act, the party’s highest profile promise in the 2016 elections. Now it seems that intraparty squabbling may endanger prospects for tax reform as well.

There are indications that the GOP is struggling to deliver on the promises made in the ambitious tax framework revealed last September. Republicans promised to lower tax rates on individuals and corporations while closing loopholes. The framework also promised to double the standard deduction and expand the child tax credit.

There have reportedly been several points of disagreement among the GOP caucus. Treatment of the tax deduction for state income taxes has been a major point of contention. There is also disagree on whether the reform should be allowed to increase the deficit and whether the cuts should be permanent. Both points affect the ability of Republicans to use a budget reconciliation to pass the bill.

Tax cuts for the wealthy have also been controversial with President Trump promising that the bill will not be a boon to upper income taxpayers. The top 20 percent of taxpayers pay 95 percent of taxes per government data cited by Politico and cuts to these taxpayers would pack the largest benefit to the economy.

“The fact that they [low-income taxpayers] don’t pay very much in taxes means that it’s very hard to provide them with a large tax cut,” said Adam Looney, a fellow at the Brookings Institution. “It’s basically impossible to have a large tax cut that doesn’t involve most of the benefits going to high-income groups just because that’s who pays taxes now.”

After a string of legislative defeats over the summer, Republicans desperately need a victory on tax reform to bolster their base ahead of next year’s midterm elections. Prospects for the passage of tax reform are not good if the party can’t even get the bill written.

 

 

The GOP Tax Reform Proposal is a Good One. But Leave 401(K) Plans Alone.

The Republican Party will not privatize social security plans, but is considering cutting the amount people can place in 401(K) plans. It is not a good idea and disincentivize saving for retirement. I have seen some on the left note that few can actually contribute the maximum. But the reality is we should want all those who can to save as much as they can now. Yes, they will probably be in a lower tax rate later in life, but we should want people saving as much as they can with every incentive to do so. Just because some cannot, does not mean we should punish those who can.

With the exception of this, the GOP’s tax framework is good. While I will personally be hurt by an inability to deduct my state taxes, I think it is a sound idea. People in high tax states are allowed the luxury of not realizing it because they get that deduction. Governor Cuomo of New York is already lamenting how unfair it would be to the people of New York, but the reality is the people of New York would actually hold people like Cuomo accountable for tax reform if they knew how much they were taxed.

I am one of the people regularly and highly critical of the GOP. There are a number of things I wish they would improve in this tax plan, including lowering the top rate. But based on what has been released of the plan and the compromises thus far, this is a good step in the right direction and we should always want the tax code advancing in the right direction.

BREAKING: Senate Acts on Filibuster-Proof Budget Blueprint for $1.5 Trillion Tax Cut, 51-49

Finally, we have something Republicans legislators can hang their hats on. This budget “blueprint” makes possible the estimated $1.5 trillion tax cut and allows that to operate under budget reconciliation rules–meaning no filibusters.

It really protects the filibuster more than it protects the tax reform proposal, which has yet to be worked out. From the New York Times:

“This is the last, best chance we will have to cut taxes,” said Senator Lindsey Graham, Republican of South Carolina and a member of the Budget Committee, who warned that the consequences would be ruinous if the party failed.

Graham continued:

“That will be the end of us as a party,” he said, “because if you’re a Republican and you don’t want to simplify the tax code and cut taxes, what good are you to anybody?”

Well, yeah. That about nails it.

Now on to negotiations with the House, which passed its budget resolution on Oct. 5.

Cruz: Tax Reform May Be Delayed Until Next Year

 

After the disappointment on Obamacare, Republicans looked to tax reform to score an elusive legislative victory. Speaker Paul Ryan (R-Wisc.) set a goal for passing the tax reform bill by the end of the year, but Sen. Ted Cruz (R-Texas) is casting doubt on that timetable.

On CNBC, Cruz said, “I believe that we will get tax reform done,” but that it will be “late this year or early next year.”

There are big obstacles in the way. FiveThirtyEight explained that there was one major division among Republicans on healthcare, while there are at least three different GOP divisions on tax reform. Sen. Bob Corker (R-Tenn.), who has been under attack by President Trump in recent weeks, leads a faction of deficit hawks who insist that tax reform not add to the deficit.

There is the question of whether to make the tax cuts permanent or temporary. Under reconciliation rules, the bill cannot increase the deficit after 10 years. One way of preventing the CBO from scoring the bill as increasing the deficit is to make the cuts temporary. Temporary tax cuts can lead to a fiscal cliff like the one Congress faced under President Obama.

A third question is who gets the tax cuts. Senators Rand Paul (R-Ky.), Marco Rubio (R-Fl.) and Mike Lee (R-Utah) have indicated that the current plan does not cut taxes enough on the middle class. In particular, Paul said that the bill “should not be a tax hike on anyone.” But if tax cuts are increased for one group, the questions of deficit scoring and whether they are to be permanent are raised once again.

The question of whether to end the federal tax deduction for state income taxes has been particularly thorny. Cruz said, “We can end that deduction if we’re lowering the tax rate enough that even people in those blue states are seeing a net tax reduction.”

“I do think virtually every Republican wants to get to yes,” Cruz said, but noted that the slim Republican majority in the Senate made passing any major bill difficult.

“We have an excruciatingly narrow majority, 52 Republicans” Cruz said. “That means if any three Republicans jump ship, we’re toast. Wrangling together 50 out of 52 Republicans with this very diverse, fractious conference is not easy.”

There are already four Republicans who have been identified as potential mavericks on the bill. Bob Corker, who is concerned about the effect on the deficit, as well as John McCain (R-Ariz.) and perennial swing votes Susan Collins (R-Maine) and Lisa Murkowski (R-Alaska) will be senators to watch.

The new Alabama senator may present a problem as well. Even if Republican Roy Moore wins the senate race there, Moore is an avowed opponent of Majority Leader Mitch McConnell and is unlikely to be a reliable vote. Moore’s position on the tax bill is uncertain, but he had opposed the Republican Obamacare reform bill.

Passing tax reform may be critical for Republicans in the 2018 midterms. Cruz acknowledged that “people are frustrated” because the Republican congressional majority is “not getting the job done.” With former White House strategist Steve Bannon leading a right-wing revolt against incumbent Republican senators, failure to win a victory on taxes could have dire consequences for the party.