President Trump’s sweeping proposal to cut corporate and business tax rates is raising GOP concerns about blowing up the deficit.
While most Republicans favor cutting taxes, worries that the proposal will spike the deficit are already leading to concerns it could cost Trump votes from his own party.
{mosads}“Anything that completely spikes the ball with regard to deficits going forward I think will be problematic within the Congress,” said Rep. Mark Sanford (R-S.C.).
Trump’s plan would reduce the tax rate for corporations and most businesses to 15 percent and create three tax brackets for individuals. Most itemized deductions would be eliminated, but the standard deduction would be doubled.
Treasury Secretary Steven Mnuchin on Wednesday hailed the plan as “the biggest tax cut and the largest tax reform in the history of our country.”
The White House provided a one-page summary of its plan that is short on details, and there is no score for what it would do to the deficit.
But it is believed that the steep reduction in business tax rates would be a budget-buster when it comes to the deficit.
“We’ll see the score,” said Sen. Ron Johnson (R-Wis.), a member of the Senate Budget Committee.
The Committee for a Responsible Federal Budget, a group headed by Maya MacGuineas, a prominent advocate for deficit reduction, on Wednesday estimated that Trump’s tax plan would cost between $3 trillion and $7 trillion over 10 years, using a traditional cost-scoring method.
Republicans are divided over whether the plan should be deficit-neutral.
Those who argue for deficit neutrality say this would make the cuts permanent while allowing for the use of budget rules that would prevent Democrats from using the filibuster.
Others argue it’s more important to spur the economy through massive tax cuts that they say could lead to economic growth above 4 percent.
“I ran because I’m worried about the debt, but I fully support this president getting this economy going,” said Sen. David Perdue (R-Ga.). “I don’t mind a little deficit spending if it produces growth in the long term.”
Grover Norquist, the president of Americans for Tax Reform, a group that advocates for lower taxes, says that higher economic growth would pay for much of the proposal.
He estimates that if the economy grows at 4 percent instead of 2 percent for 10 years, it would increase federal revenue by $5 trillion.
Predicting economic growth is notoriously difficult, however, and some experts dispute those optimistic projections.
Sen. Rob Portman (R-Ohio), an influential member of the Senate Finance Committee, argues that tax cuts should be deficit-neutral so they don’t have to sunset after 10 years. Budgetary rules require that legislation passed on the special track GOP leaders plan to use for tax reform cannot add to the debt outside a 10-year window.
“It’s hard to make it work,” Portman said of Trump’s ambitious plans to slash the corporate and small business tax rates to 15 percent.
Corporations are now taxed at 35 percent — although many companies lower their tax bills by taking a variety of credits and deductions — and owner-operated, pass-through and limited liability companies are taxed at individual income rates.
Portman and many Republicans favor assessing the budgetary impact of tax reform under a dynamic scoring system that takes into account the effect that greater projected economic activity would have on federal revenues.
“There are limits to that. You can’t take the rates too low,” he cautioned.
“I’m hopeful that using a macroeconomic score and a policy baseline that we can end up with something that is revenue-neutral,” Portman added, explaining that he views revenue-neutral and deficit-neutral tax reform as synonymous.
“The reason I would like to see it be deficit-neutral is I want it to be permanent, I don’t want it to be limited to the 10 years of the budget,” he said.
The landmark tax cuts former President George W. Bush passed in 2001 and 2003 expired after 10 years because they added to the deficit outside the budget window.
Portman said he has not yet seen a budget score for Trump’s plan and declined to pass judgment on its implications for the deficit.
Other Republicans, however, are not interested in deficit-neutral tax reform.
“We can’t fix the deficit without economic growth,” said Sen. Mike Rounds (R-S.D.).
“If it’s supposedly a net-net [tax cut] of zero, then I don’t think that does the job,” he said. “We have to look at whether we have a net tax decrease. If we have a net tax decrease, then we will generate economic growth.”
Congressional aides warn the stimulative effect of cutting taxes will increase projected revenues only so much — not nearly enough to entirely pay for huge losses in revenue that would result from Trump’s sweeping proposals.
Sen. Pat Roberts (R-Kan.), another member of the Senate Finance Committee, said the deficit implications of Trump’s huge tax plan “is a problem.”
“We’re going to have to address it,” he said.
Roberts argued that the country has a $20 trillion debt because past administrations similarly played down budgetary consequences.
He also suggested it might be wiser to pursue bipartisan tax reform.
“I’ve just been saying, why don’t we limit things [to] where we have a pretty good chance of coming together?” he said, adding that it would be “preferable” to get Democratic support.
Democrats on Wednesday panned Trump’s proposal, making it clear that Republicans will have to use a special budgetary path to pass it in the Senate.
“At a time when income distribution is getting even worse in America, the President’s outline clearly makes life easier for the wealthy and special interests and makes life harder for middle class and lower income Americans,” Senate Democratic Leader Charles Schumer (N.Y.) said in a statement.
Republicans control 52 Senate seats and could afford no more than two defections in the upper chamber if Democrats unify against Trump’s proposal.
–This report was updated at 6:54 a.m.