Politics

Cruz on the edge of how far GOP will go on tax cuts

WASHINGTON – Texas U.S. Sen. Ted Cruz laid out a sweeping vision for tax cuts Wednesday that would go significantly further than what House Republicans and some in the Trump administration have proposed so far.

In what his office billed as a “major policy speech,” Cruz proposed scrapping some GOP plans that call for tax cuts to be offset by corresponding tax measures to make them “revenue neutral.”


“Tax reform should not be revenue neutral,” Cruz said in a speech at the Tax Foundation, a conservative think tank that helped work out some of the tax proposals of his 2016 presidential campaign, when he advocated for the dismantling of the IRS.

Cruz’s formulation is more aggressive than a House Republican tax reform blueprint that calls for tax cuts to be paid for to avoid deepening deficits and debt. One of chief proponents of that approach is Republican Rep. Kevin Brady, of The Woodlands, chairman of the House Ways and Means Committee.

“I believe, both the most pro-growth approach we can take, and the fiscally responsible approach we can take, is to break even with the budget, counting on just solid, verifiable economic growth,” Brady said at a Financial Services Roundtable event earlier this year.

Many Republicans, however, argue that in general tax cuts pay for themselves, an idea that descends from the supply-side theories of the Reagan era, which former President George H.W. Bush famously called “voodoo economics.”

But with Republicans pressing for the first major tax overhaul in more than 30 years, Cruz’s speech encapsulates an ongoing debate as to whether a final GOP tax plan should maintain current revenue levels.

House Speaker Paul Ryan, in an interview Wednesday with the Associated Press, declined to say whether he expects a GOP tax overhaul to be “revenue neutral,” leaving open whether Republicans are willing to increase the national debt to enact major tax cuts.

“We want pro-growth tax reform that will get the economy growing, that will get people back to work, that will get middle income taxpayers a tax cut and that will put American businesses in a better competitive playing field,” Ryan said. “That is more important than anything else because if we have tax reform that doesn’t actually fix our problems, then we’ll lose more and more businesses, and the deficit will go even higher.”

In an address before an influential group of policy analysts, conservative thinkers and Capitol Hill staffers, Cruz argued that the federal government should actually lower the amount the government takes in from taxpayers, rather than simply shifting the burden from one group to another.

Cruz’s plan comes at a time when President Donald Trump and Republican leaders in Congress are trying to iron out the final details of a GOP tax package that’s been in the works for the past year.

Earlier Wednesday, Trump made a public plea to Congress on Twitter: “The approval process for the biggest Tax Cut & Tax Reform package in the history of our country will soon begin. Move fast Congress!”

In a meeting with lawmakers from both parties Wednesday, Trump called for a bill focused on middle-class and business tax cuts.

“The rich will not be gaining at all with this plan,” he told reporters. “We are looking for the middle class and we are looking for jobs — jobs being the economy.” He also said he’s open to a tax hike for the wealthiest Americans. “I think the wealthy will be pretty much where they are, pretty much where they are,” Trump said. “If they have to go higher, they’ll go higher.”

Brady has promised to get a tax package through Congress by the end of this year, a timetable that many analysts see as wildly optimistic, given a crunch of politically-tricky legislative demands such as a getting a budget agreement, passing a government funding bill, and raising the debt limit.

Up to this point, the House Republican tax plan had been advertised as being revenue neutral, meaning that lawmakers would have to find some way to pay for it without adding to annual deficits within a 10- year budget window.

That requirement has left GOP lawmakers facing a policy impasse, particularly as the Trump White House and many Senate Republicans balked at a controversial House “border tax” plan to raise new revenues with a 20 percent tax on imports.

Cruz, like other Republicans, has suggested that the predicted economic lift from individual and business tax cuts could chip away at budget deficits and the national debt.
“If we focus on growth,” he said, “it helps everybody.”

Like the House GOP blueprint, Cruz’s plan would compress tax rates from seven to three or less, while eliminating or simplifying credits and deductions so that taxpayers could file their returns on a postcard.

Unlike the House GOP’s proposed postcard, however, Cruz’s postcard does not specifically include the popular mortgage interest deduction used by millions of U.S. homeowners, though aides said it could be an itemized deduction. Some Republicans have called for at least capping the deduction.

In some respects, Cruz has backed off some of the bolder tax ideas of his 2016 campaign. As a presidential candidate, he argued for repealing corporate income taxes, collapsing seven individual income tax rates to a single 10 percent rate, and eliminating most deductions and credits. He also proposed a new broad-based 16 percent consumption tax.

The consumption tax, which would have been a tough sell in Congress, is now gone. Like Trump, Cruz would now set corporate tax rates at between 15- and 20 percent, down from the current 35 percent maximum, which he called “punitive.”

While Republicans have yet to unveil any specific tax rate proposals, Democrats argue that the plans that have been floated so far would disproportionately benefit the wealthy and add to the deficit. The Tax Policy Center estimated that Cruz’s election-year plan would have reduced federal tax revenues by $8.6 trillion over a decade.

But Cruz argued Tuesday that rather than assuming a static economy, any Republican tax plan should be judged by the expected economic growth from tax cuts, a concept known as “dynamic scoring.”

On that point, he has significant GOP support, said Texas U.S. Sen. John Cornyn. “I am concerned that in the long-run we continue to have deficit and debt problems,” he said. “But I think this is something that will be addressed in part by greater economic growth and, thus, more revenue brought into the treasury.”

Cruz also proposed lengthening the customary budget window from 10 years to 20 or 30 years, a period that would allow for more permanent tax cuts to take hold.

Cornyn said that while there has been some discussion in the Senate about a longer time frame for balancing the government’s books, “there hasn’t been any decision on that.”

For decades, the Senate has required that changes in the tax code, without a supermajority, must come into balance over 10 years.

Facing that limitation, Republicans have set out to enact their tax cuts under a process called “budget reconciliation,” which requires only a simple Senate majority, rather than the 60 votes needed to overcome a filibuster.

That procedural hurdle is considered critical to any GOP tax cut proposal because of the likelihood of a filibuster by Democrats who oppose tax cuts that they say disproportionately benefit the wealthy at the expense of workers and domestic programs like Socials Security and Medicare.

Although Trump has made overtures to Democratic leaders on tax reform, Cruz termed the likelihood that Democrats will join in a GOP tax proposal as “virtually nill.”

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