What the Senate's $1.5 Trillion Tax Cut Deal Means

Hint: It's not good news for the deficit. By Yuval Rosenberg and Michael Rainey What the GOP's $1.5 Trillion Tax Cut Deal Means President Trump has touted the tax cut currently being shaped by his administration and Congress as the [biggest]( in American history, but just how big it could be is — and will be — the subject of some heated debate. Now we have a number: Members of the Senate Budget Committee have reportedly struck a tentative deal for the budget resolution to allow about $1.5 trillion in tax cuts over the next decade. That budget blueprint is a critical step toward enacting any tax cut or tax reform plan. And while the final size of the tax cuts may still change, the $1.5 trillion being considered is significant for several reasons: 1. It would add to the deficit — though just how much will be the subject of some debate and plenty of accounting games. Some Republicans, for example, argue that the increase in the deficit will be [about half as big]( as the $1.5 trillion tax cut, once you factor in the resulting boost to economic growth and account for some tax cuts that would have likely been extended anyway. But it’s increasingly clear that Republicans have largely jettisoned the idea of fully paying for their tax plan in favor of getting as large a tax cut as they can. The GOP shift was met with intense criticism from fiscal hawks. “This debt-dependent approach to tax reform flies in the face of the fiscal discipline so many members of the Budget Committee have voiced concern about in the past and violates pay-as-you-go principles and law,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement Tuesday. “Moreover, the arguments being made to allow for $1.5 trillion of tax cuts – dynamic scoring and current policy adjustments – are disingenuous and at best can help explain a small fraction of this massive tax cut.” 2. It would mean some tax cuts will likely only be temporary. For Republicans to be able to push ahead without Democratic votes, their plan can’t increase the deficit after 10 years. The budget blueprint may not meet that requirement without having some of the provisions sunset. Some Republicans have argued that the 10-year budget window could be extended to keep the tax cuts in place for longer. 3. It would likely mean Republicans still can’t get tax rates quite as low as they want. The 15 percent corporate rate President Trump wants, for example, would cost [$2.4 trillion]( over a decade. And an analysis earlier this year of a plan consistent with President Trump's April outline found that revenue could fall be as much as [$7.8 trillion]( over a decade. 4. It would help Republicans shrug off some — but not all — hard choices. “Calling for a tax cut in the budget would let Republicans lower tax rates while making fewer tough decisions on what tax breaks to eliminate to help pay for the cuts,” the Journal’s Richard Rubin and Siobhan Hughes write. Even so, the rate reductions in the plan could reduce federal revenue by significantly more than $2 trillion, meaning they’d have to close the gap by eliminating some loopholes and tax breaks. [Share]( [Tweet]( [Forward]( A Deficit Hawk Strikes a Deal Sen. Bob Corker (R-TN) — a member of the Senate’s “dwindling band of deficit hawks,” as the AP put it — had sought to [limit]( the deficit increases of the GOP tax plan. But he signaled some flexibility in announcing the budget committee’s potential tax cut deal on Tuesday. "I'm all for pro-growth tax reform but over a decade it needs to pay for itself per valid models," he said, according to the [Associated Press](. Corker had said recently that he was willing to accept a budget framework that assumed that some lapsed or expiring tax breaks would be extended by Congress, lowering the official cost of tax cuts by some $250 billion. The so-called “dynamic” effects baked into the official scoring of the tax plan — projections of the economic boost from the policy changes — could add hundreds of billions more. But those dynamic scoring models are the subject of debate and disagreement among economists — and those debates are [bound to intensify]( as tax legislation winds its way through Congress. “Congress' impartial scorekeepers have accepted the premise of such "dynamic scoring," but past studies by the Joint Tax Committee and Congressional Budget Office have been more pessimistic about how much economic growth and tax revenues would follow tax cuts,” AP’s Andrew Taylor notes. Corker, meanwhile, was one of eight senators who voted against the $700 billion defense policy bill on Monday. He explained his “no” vote by saying, “The inability to get our fiscal house in order is the greatest threat to our country, and I will continue fighting for an agreement that responsibly funds our military without adding to our massive deficits.” [Share]( [Tweet]( [Forward]( Tweet of the Day [Share]( [Tweet]( [Forward]( The Bipartisan Effort to Stabilize Obamacare Fails The Senate health care push is clearly all on Graham-Cassidy now, which likely undermined the bipartisan effort to fix Obamacare. The statement from Sen. Lamar Alexander (R-TN), chairman of the Senate Health, Education, Labor and Pensions Committee: "Senator [Patty] Murray and I had hoped to agree early this week on a limited, bipartisan plan to stabilize 2018 premiums in the individual health insurance market that we could take to Senate leaders by the end of the month. During the last month, we have worked hard and in good faith, but have not found the necessary consensus among Republicans and Democrats to put a bill in the Senate leaders’ hands that could be enacted.” Earlier Wednesday, Sen. Lindsey Graham [said]( of his Obamacare replacement bill: "Paul Ryan told me to my face: you pass it, we pass it." Tax Inversions Come with a Big Price Tag for Uncle Sam The drugmaker Mylan was founded in West Virginia and maintains its world headquarters in Pennsylvania, but for tax purposes it’s been a Dutch company since 2015. This little bit of geographical magic was made possible through a complicated tax maneuver known as a corporate inversion, in which Mylan acquired the generics business of Abbot Laboratories, headquartered in Netherlands. The move is [expected]( to drive Mylan’s U.S. tax rate from 25 percent down into the teens over the next few years. According to a [study]( released by the Congressional Budget Office on Monday, tax inversions are all too effective in reducing corporate tax bills. The CBO looked at U.S. companies that executed inversions from 1994 to 2014 and found that their tax expenses fell by an average of $45 million in the year following the maneuver. The overall effect on the tax base in the U.S. is quite powerful. The CBO expects corporate tax revenues to be 2.5 percent – or $12 billion – lower in 2017 than they would have been as a result of inversions and related strategies for moving profits to lower-tax areas. [Share]( [Tweet]( [Forward]( Fiscal Flashes Obamacare Repeal Bill Preserves Some Major Taxes: The Graham-Cassidy bill, which would repeal much of Obamacare and replace it with block grants to the states, keeps in place several taxes that were part of the Affordable Care Act. The Senate’s last-ditch repeal effort would maintain the current 3.8 percent tax on net investment income and the 0.9 percent Medicare surtax; the taxes apply only to adjusted gross incomes of individuals earning more than $200,000 or married couples earning more than $250,000. Each tax raises more than $100 billion over 10 years. The legislation cuts three smaller taxes: a levy on medical devices, a tax on over-the-counter drugs, and a tax on health savings accounts. Senate Republicans are pushing for a vote on the controversial bill before a September 30 deadline. ([Bloomberg]( Employer-Sponsored Health Care Premiums Rise Modestly in 2017: The average annual premium for job-based health insurance was $18,764 for families and $6,690 for individuals in 2017, according to a new survey by the Kaiser Family Foundation and the Health Research & Educational Trust. Family premiums rose 3 percent year over year, while individual rates rose 4 percent. By contrast, the rates on individual plans sold through the Obamacare exchanges jumped 20 percent this year. Employees are typically subsidized by their employers: For family plans, employees pay about a third of the overall costs on average, or $5,714 per year. ([Kaiser Family Foundation]( What We're Reading - [Graham-Cassidy Is Already Hurting Health Care]( – Bloomberg Gadfly - [How Senate Relationships Could Decide Obamacare Repeal]( – The Hill - [John McCain Faces a New Test of His Principles]( – David Leonhardt, New York Times - [White House Seriously Considers Abandoning Some Tax Cuts for the Wealthy]( – Washington Post - [One Tax Break Could Save Companies $2 Trillion, but They Don't Want It]( – CNBC - ['Nightmarish': Reinsurance Approval Costly for Minnesota]( – Associated Press - [Bemoaning Budget Cuts, Navigators Say Feds Don’t Appreciate Scope of the Job]( – Kaiser Health News - [Some Corporations Pay a Lot More Taxes Than Others]( – Justin Fox, Bloomberg - [Nobody Seems to Know Why There’s No US Inflation]( – Financial Times - [The Economy Really Is Broken — but We Know How to Fix It]( – Vox - [The Fed Is About to Embark on the Great Unwinding]( – Wall Street Journal - [Higher Prices Will Actually Boost iPhone Demand, Not Hurt It, Morgan Stanley Predicts]( – CNBC - [Trump Administration Rejects Study Showing Positive Impact of Refugees]( – New York Times - [Does Environmental Crime Pay?]( – ProMarket Copyright © 2017 The Fiscal Times, All rights reserved. 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