- A first look tonight at the Republican U.S. Senate
tax plan and where it goes from here.
Wisconsin Senator Ron Johnson is now onboard after getting an
additional break for business.
But the latest analysis of the plan by Congress's Joint
Committee on Taxation shows the Senate GOP plan would add $1
trillion to the deficit over ten years.
Still, the bill is hurdling toward passage
with Johnson's imprimatur.
We're joined tonight by a tax expert and professor
in the UW-Madison La Follette School of Public Affairs.
Rourke O'Brien also served as senior policy adviser
at the U.S. Treasury Department.
So thanks very much for being here to talk about this.
- Thanks for having me.
- So the tax plan is somewhat overshadowed today by other
major breaking news out of Washington,
but what do you think of that new scoring of which we just
spoke with its trillion dollar deficit?
What does that do to this bill for the politics of it?
- Sure, when we started this whole process,
Paul Ryan and Mitch McConnell were both promising to go after
a tax reform package that was deficit neutral.
And then the goalposts changed and they said they're willing to
accept up one and a half trillion dollars of on budget
deficit increases with the promise that the economic growth
that would follow from the tax reform package would actually
offset all of those costs.
That it would be actually revenue neutral
at the end of the day.
But this is the first score we've seen
that's allowed for this kind of dynamic scoring.
This idea that we'll kind of count the potential feedback
mechanism through which the tax cuts might lead to more growth
which might offset some of the costs of the bill,
but it looks like that's only going to reduce the price tag
by a little bit.
So we're still going to have, even under the best case
scenario, a trillion dollars added to the deficit.
- Now, the last time we spoke you envisioned that
the House tax plan would require a lot of rewriting
once the Senate was involved.
What are the important changes that were made in your mind
that are now teed up for this Senate vote?
- I think the big difference between the House bill and the
Senate bill is the inclusion of the repeal of the individual
mandate under the ACA.
This was a provision that was added to the bill that will save
the government some money because more people will no
longer be insured and covered under the ACA.
That means fewer subsidies through the marketplaces.
That means lower cost to the government,
which created more room for tax cuts in the Senate bill.
Of course on the other side of that,
we're going to have potentially up to 13 million more Americans
uninsured and premiums are expected to go up
an additional 10% a year under this provision.
So here we have--the House plan was just mainly looking at just
taxes.
Here we have a tax and health care bill all in one.
- A lot of people have been talking about the process.
What do you think of it?
Does it seem to have been hurried?
- It does.
I mean these are really complicated bills.
There are a lot of really smart experts all around the country
who have models where they're trying to understand the
different implications of these various provisions.
Here we have a vote that's happening where we're just now
getting the latest numbers from JCT.
And it still seems that that might not even be the final
score as the bill seems to be changing out from underneath us.
- President Trump remarked this week, I heard him say it,
that the tax plan would hurt him and other wealthy people.
Could that possibly be true?
- It's hard to imagine how Trump personally won't benefit
from this bill.
The estate tax reform alone is-- it stands to benefit wealthy
families, such as the Trumps.
In addition, this provision to reduce taxes on pass-through
corporations, of which many Trump organization companies
are pass-through entities, that stands to benefit the president
and other wealthy business owners.
- Now, our own Senator Ron Johnson, as you know,
sought and received deeper business tax cuts to include
so-called pass-through companies.
He and others described these as kind of main street businesses.
Is that fully accurate?
- Many small business are incorporated
as pass-through entities.
So many mom and pop shops are.
It's the idea that the company is so small,
they only have a few owners and they rely on that business
income as their personal income.
So it's a way to simplify the tax code so they don't have to
get taxed twice, once through corporate tax process,
then through the individual income tax process.
But the rules on how you can organize as a pass-through
company are pretty loose.
So you can have hedge fund managers and law firms
and other kind of much wealthier entities
incorporating as pass-through companies.
By some estimates, 70% of all pass-through revenue
goes to the top 1%.
So this is ultimately going to be a big tax cut again
for the wealthy.
- Going back to our previous interview,
you said that whether corporate tax savings will be passed on
to the average worker in higher wages or whether it will just be
captured by shareholders through dividends is an important part
of the story that remains to be told.
When will that be able to be told?
- Yeah. It's still an open question.
How much can we expect these corporate tax cuts to be passed
on to the worker?
Even by the most generous estimate, we'd only expect,
in some economic modeling, about 25% of those tax cuts to be
passed on to the worker in the form of higher wages.
But it's important to remember that right now in most
industries, corporate profits are at all-time highs
and wages have stagnated.
It's hard to see how we can expect
this one-to-one transfer that
we've been promised that these corporate tax cuts will be
passed on to the worker.
- What is your reaction as a tax expert to the part of the
plan that sunsets the individual tax cuts but keeps
corporate tax cuts permanent?
- It creates quite a fiscal cliff for families.
So in the next ten years, while some families in years one and
two might receive a modest tax cut under this bill,
those tax cuts sunset.
By 2027, the majority of middle class families are going to
actually see a tax increase.
So the idea is that part of the bill will be so popular that
five or ten years from now, there will be another bill that
will vote to extend those provisions.
But then that will only make the deficit picture worse.
At some point, we have to figure out a tax bill that is
permanent.
A tax reform that works for everyone and that ultimately
will be paid for somehow.
- Speaking of being paid for, as part of the PAYGO sequester
rules, would there have to be automatic cuts to programs like
Medicare because of this tax bill?
- It does look likely that the tax bill as written would run
afoul of PAYGO rules which would automatically trigger cuts
to a number of programs including Medicare.
In the past, the Congress has gone ahead and put in waivers
and said that this specific piece of legislation won't count
against those rules.
It looks like that's what they're going to do here but
that's going to be an important thing to watch.
- All right, Rourke O'Brien, thanks very much for your expertise.
- Thanks for having me.