Tax Reform Takes Two Steps Forward

Though there's still a long way to go By Yuval Rosenberg and Michael Rainey House Opens the Door to Tax Reform Republicans just took some small but important steps toward tax reform. The House of Representatives passed a budget resolution Thursday that sets the stage for what could be major tax reform legislation in the coming months. While the nonbinding 2018 budget plan calls for more than $5 trillion in spending cuts over 10 years, including a $1 trillion cut for Medicaid, its main purpose is procedural, as it clears he way for a tax bill that can be passed in the Senate with a simple majority. The upper chamber also made progress on tax reform Thursday, with the Senate Budget Committee approving its own budget resolution. The House budget unlocks the option for the upper chamber to use the reconciliation process to pass a major tax bill. Reconciliation will allow the Senate to move ahead without help from Democrats and on an expedited basis, thanks the GOP’s 52-seat majority. (For more on the reconciliation process, see this overview by the [Tax Policy Center]( While many of the details of the House budget proposal will likely fall by the wayside as negotiations proceed, there are nevertheless plenty of differences between the House and Senate that must be ironed out, not least the extent to which a tax reform bill will be allowed to increase the deficit. As it stands now, the Senate will allow $1.5 trillion to be added to the deficit over the next decade, while the House budget resolution calls for no net increase in debt. The House budget also serves as a statement of political priorities for the party – Rep Diane Black (R-TN), chair of the House Budget Committee, [called it]( “the most conservative budget in 20 years.” Politico finds several [important ideas]( in the proposal, including a continued interest in cutting entitlements and repealing Obamacare, a willingness to significantly boost defense spending, and a desire to balance the budget. No Democrats vote for the resolution, and 18 Republicans voted against it as well. Rep. [John Yarmuth]( of Kentucky, the ranking Democrat on the House Budget Committee, expressed deep skepticism about the bill and the tax reform that will likely follow: “This budget isn’t about conservative policy or reducing the size of our debt and deficits. It’s not even about American families. This budget is about one thing – using budget reconciliation to ram through giant tax giveaways to the wealthy and big corporations - and to do it without bipartisan support.” [Share]( [Tweet]( [Forward]( Quote of the Day [Share]( [Tweet]( [Forward]( One Simple Way to Make the Trump Tax Plan Fairer … The Republican tax outline released last week has been met with criticism from analysts and others who say that it disproportionately benefits the wealthy and would hurt some in the upper middle class. But there's a simple way to make the plan fairer and ensure that goal of closing loopholes is accomplished "without singling out one tax break, one area of the country or one set of wealthy people," the editorial board of The Washington Post argues: capping the total value of the deductions any taxpayer can claim. From the editorial: "This idea is not new, and it is not partisan. Mitt Romney and President Trump each proposed some form of this plan in the 2012 and 2016 presidential races, respectively. President Barack Obama advanced his own version during his second term. Depending on how lawmakers crafted it, the policy could raise huge amounts of money almost exclusively from the wealthy — across the country." Of course, such a limit would face much the same resistance from groups that have mobilized to preserve the value of large tax breaks that are or could be on the chopping block. "But," the editorial concludes, "it would be a fairer, more honest, more balanced policy than what the administration is peddling now." [Share]( [Tweet]( [Forward]( … and 3 Ideas for How to Pay for the Tax Cuts In its current form, it looks like the GOP tax plan would reduce federal revenues by trillions of dollars. An [analysis]( of the proposal by the Tax Policy Center found a net cost of $2.4 trillion over 10 years, inspiring some reformers to look for new sources of revenue (when they weren’t simply [rejecting the report]( outright or defending the [virtues of deficit-driven tax cuts](. However, as the vigorous push-back on the elimination of the state and local tax deduction shows, finding new revenues won’t be easy. On Thursday, James B. Stewart of The New York Times offered [three ideas]( that could gain bipartisan support for how to raise revenues within the context of the GOP proposal: 1) Create a new, higher tax bracket for the very rich. The GOP proposal raises the possibility of higher taxes at the top of the income scale, at a rate to be defined later. Stewart says that a 44 percent rate applied to the top 1 percent of taxpayers would raise an additional $600 billion over 10 years, and would help counteract claims that the GOP plan is a give-away to the rich. 2) Tax capital gains at death. President Trump proposed a plan along these lines during the campaign, and it could be a popular way to help level the playing field between the wealthy, who commonly pass unrealized capital gains on to the next generation, and everyone else. Stewart estimates that taxing capital gains on intergenerational transfers of wealth would raise more than $300 billion over a decade. 3) Curb the deduction for corporate interest expense. The [Tax Foundation]( says that the corporate interest deduction costs $1.2 trillion over 10 tears while distorting business spending and planning. Eliminating the deduction could raise $600 billion over 10 years. Taken together, these three proposals would raise more than a trillion dollars over the next decade and, Stewart argues, go a long way toward paying for a tax reform package that both parties say they want. [Share]( [Tweet]( [Forward]( Chart of the Day Via [Ernie Tedeschi](. [Share]( [Tweet]( [Forward]( Big Ad Buys to Push Tax Reform Two conservative groups are [spending millions]( to promote an overhaul of the tax code. The American Action Network announced Thursday that it will lay out $2 million to broadcast a new [TV ad]( featuring a Midwestern mom who says her family is “living paycheck to paycheck” and that a middle class tax cut would give them “piece of mind.” The ad will air in 28 congressional districts currently held by Republicans. Americans for Prosperity, backed by the Koch brothers, will spend $4.5 million on ads that promote tax reform while criticizing three red-state Democratic senators -- Claire McCaskill (MO), Tammy {NAME} (WI) and Joe Donnelly (IN). [Share]( [Tweet]( [Forward]( What We're Reading - [Why Tax Cuts Will Only Get Harder From Here]( -- Bloomberg - [Senate GOP Hits Resistance on Estate-Tax Repeal]( – Richard Rubin, Wall Street Journal - [House Dem Calls for Bipartisan Talks to Fund Children’s Health Care]( – The Hill - [How We Think About the Deficit Is Mostly Wrong]( -- Stephanie Kelton, New York Times - [We Need Flatter Taxes, Cleaner Rules]( -- Richard A. Epstein, Hoover Institution - [Donald Trump is Right. Forgive Puerto Rico's Debt]( -- Bryce Covert, The New Republic - [Puerto Rico's Economic Disaster Was Made in Washington]( – Justin Fox, Bloomberg View - [Oil Drillers May See Big U.S. Tax Cut–If Deductions Survive]( – Bloomberg - [Consumer Protection Bureau Cracks Down on Payday Lenders]( – LA Times - [Could the Unwinding of QE Trigger a Liquidity Crisis?]( -- Lucy Burton, Telegraph UK - [Low Unemployment Doesn't Boost Wages Like It Used To]( -- Harold Meyerson, American Prospect - [Wu-Tang Clan’s Ghostface Killah Has a Cryptocurrency Venture]( – CNBC Copyright © 2017 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com. Our mailing address is: The Fiscal Times 712 Fifth AvenueNew York, NY 10019 [Add us to your address book]( If someone has forwarded this email to you, consider signing up for The Fiscal Times emails on our [website](. Want to change how you receive these emails? 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