'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.”
Fitch Sends a Warning on US Credit Rating
One of the three major credit ratings agencies warned Wednesday that a failure to raise the debt ceiling could result in a lower credit rating for the U.S.
Fitch Ratings currently assigns a AAA rating to U.S. debt, the highest level possible. However, a failure to raise the debt ceiling "may not be compatible with 'AAA' status," according to the agency.
If the U.S. cannot sell more debt after bumping up against the debt ceiling, it may not be able to make all of its interest payments on time and in full. The federal government could begin running out of cash as soon as October.
The debt ceiling is currently $19.9 trillion, and Treasury Secretary Steven Mnuchin has repeatedly urged Congress to raise the debt ceiling by September 29. A failure to do so could roil financial markets around the world, and ultimately increase the cost of servicing U.S. debt.
This is not the first time Congress has faced this problem. During an earlier debt ceiling showdown in 2011, Standard & Poor's reduced its rating on U.S. debt from its highest level to AA+. However, Fitch and Moody’s stuck with their top ratings.
Senators to Hold Hearings on a Bipartisan Fix for Health Care
Mark your calendars: Senate health committee Chairman Lamar Alexander (R-Tenn.) and Ranking Member Patty Murray (D-Wash.) announced today that they will hold bipartisan hearings on Sept. 6 and 7 focused on stabilizing premiums in the individual insurance market. The first hearing will be with state insurance commissioners; the second will be with governors.
In a statement, Alexander noted that 18 million Americans buy insurance on the individual market.
“My goal by the end of September is to give them peace of mind that they will be able to buy insurance at a reasonable price for the year 2018,” he said. “Unless Congress acts by September 27—when insurance companies must sign contracts with the federal government to sell insurance on the federal exchange in 2018— 9 million Americans in the individual market who receive no government help purchasing health insurance and whose premiums have already skyrocketed may see their premiums go up even more. Even those with subsidies in up to half our states may find themselves with zero options for buying health insurance on the Obamacare exchanges in 2018.”
McConnell: ‘Zero Chance’ the Debt Ceiling Will Be Breached
At an event in Kentucky to discuss tax reform, Senate Majority Leader Mitch McConnell and Treasury Secretary Steven Mnuchin insisted Monday that Congress will raise the debt ceiling by late next month, in time for the U.S. to avoid a default that could roil the global economy and markets.
Related: The Debt Ceiling — What It Is and Why We Should Care
The key quotes, per Roll Call:
McConnell: "There is zero chance — no chance — we won't raise the debt ceiling. No chance. America's not going to default. And we'll get the job done in conjunction with the secretary of the Treasury."
Mnuchin: “We’re going to get the debt ceiling passed. I think that everybody understands this is not a Republican issue, this is not a Democrat issue. We need to be able to pay our debts. This is about having a clean debt ceiling so that we can maintain the best credit, the reserve currency, and be focused on what we should be focusing on — so many other really important issues for the economy.”
Related: Here’s a Solution for the Annual Debt Ceiling Crisis — Get Rid of It
Mnuchin reiterated his “strong preference” for a “clean” increase to the debt limit — one without other policy proposals or spending cuts attached to it — but some House conservatives continue to press for such cuts.
Bonus McConnell quote on what tax breaks might be eliminated in tax reform: “I think there are only two things that the American people think are actually in the Constitution: The charitable deduction and the home mortgage interest deduction. So, if you’re worried about those two, you can breathe easy. For all the rest of you, there’s no point in doing tax reform unless we look at all of these preferences, and carried interest would be among them.”
Trump’s Travel and Family Size Squeeze Secret Service Budget
In an interview with USA Today, Secret Service Director Randolph "Tex" Alles said the agency is bumping up against federally mandated salary and overtime caps in executing its mission to protect the president and his family.
USA Today’s Kevin Johnson notes that 42 people in the Trump administration have Secret Service protection, including 18 of the president’s family members. Under President Obama, 31 people had such protection.
“The compensation crunch is so serious that the director has begun discussions with key lawmakers to raise the combined salary and overtime cap for agents, from $160,000 per year to $187,000 for at least the duration of Trump's first term,” Johnson reported.
Related: Which Former President Costs US the Most?
In a statement, Alles said the agency has the funding it needs for the rest of the fiscal year, which runs through Sept. 30, but estimated that 1,100 employees run into statutory pay caps as a result of overtime work during this calendar year.
“This issue is not one that can be attributed to the current Administration’s protection requirements alone, but rather has been an ongoing issue for nearly a decade due to an overall increase in operational tempo," Alles said in the statement.
Earlier: The Secret Service Won’t Get $60 Million More to Protect the Trumps
Will Trump's Tax Cuts Really Happen? Economists Are Surprisingly Optimistic
Despite all the thorny questions swirling around President Trump's nascent tax reform plan, 29 of 38 economists surveyed by Bloomberg in a monthly poll said they expect Congress to cut taxes by November of next year.
The hitch: The economists don’t expect the cuts will help the economy much. The median projection of a larger group of 71 economists is for 2018 growth of 2.3 percent, up only slightly from 2.1 percent this year — and by 2019, the economists see growth slipping back to 2 percent.