Committee for a Responsible Federal Budget
Concept_DC_Capitol Building

Event Recap: Paying for Tax Reform

Oct 24, 2017 | Taxes

On October 4, the Committee for a Responsible Federal Budget (CRFB) hosted an event on Capitol Hill on the need to pay for tax reform. The event featured keynote remarks by Representative David Schweikert (R-AZ) on his vision for fiscally responsible tax reform followed by two panels of experts discussing options to pay for tax reform and lessons learned from past tax reform efforts. 

The event can be viewed below or on our Facebook page here.

CRFB's Mike Murphy kicked off the event with opening remarks making clear that CRFB fully supports pro-growth tax reform as long as it's fiscally responsible. In conjunction with the event, CRFB published a new paper: Tax Cuts Don't Pay For Themselves.

In his keynote address, Representative Schweikert lamented the fiscal situation that Congress is worsening for future generations. He expressed great frustration at Members putting politics above math and quick fixes over long-term solutions. Looking at economic growth, he noted that the peak baby boomer is only 60 years old, meaning that our economy will face more demographic stress in the years ahead. Adding that immigration, technology, and regulatory reform can do amazing things to boost growth, he concluded there is no silver bullet for returning to historic rates of growth.

Following Representative Schweikert's keynote address, Wall Street Journal tax reporter Richard Rubin moderated two panels of tax experts. The first panel featured tax policy experts: Eric Toder of the Tax Policy Center, Kyle Pomerleau of the Tax Foundation, Gordon Gray of the American Action Forum, and CRFB's own Marc Goldwein.

Goldwein started the panel by expressing his support for pro-growth tax reform while decrying unpaid-for tax cuts. He talked about how it would be good for tax reform to have a specific fiscal goal in mind, said that we need to be realistic about how low we can get rates, and added that lawmakers need to keep base broadening on the table in order to make tax reform responsible and not just turn into deficit-financed tax cuts. Gray then discussed how the Big 6 framework left a lot to be decided, including mentioning how it was "all ice cream, no veggies" in that it discussed all of the cuts without most of the pay-fors. Gray also noted that it is important for analysis to be honest and realistic during tax reform, saying he did not think it was even possible for the public to evaluate the framework yet because it has so few details. Next, Pomerleau argued that tax reform should first figure out what the base of taxation should be and what revenue is needed, then figure out where rates can be set. Pomerleau also mentioned how important making changes permanent would be and that the Administration needs to be realistic about the potential for dynamic scoring. Finally, Toder talked about how important it is to make sure tax reform doesn't lose revenue so that it doesn't hurt deficits. He talked about how lawmakers must consider who will be winners and losers under tax reform, including by looking at how eliminating tax expenditures affects people. While base broadening is difficult, Toder emphasized that tradeoffs will need to be made and that lawmakers should also consider new revenue sources like a carbon tax.

The Q&A section included a discussion about the possibilities of tax reform, including its growth potential. Goldwein and Toder warned that revenue-losing reform could possibly slow growth rather than improve it, while Pomerleau and Gray stressed that it's crucial to evaluate the final details of reform. On how the federal government can learn from states in their experience with tax reform, Pomerleau noted that revenue triggers – where tax rates change based on how revenue performs compared to targets – could be helpful but would require a different approach than the rates-first-revenue-later one currently being done. Rubin also asked the panel about whether the 2010 Simpson-Bowles framework was still relevant today. Goldwein – who worked on the Simpson-Bowles Commission– answered that things had changed from then to today, but lawmakers should take a page from Simpson-Bowles by getting as broad a base as possible and then setting rates based on how many tax breaks were retained. Gray remarked that the easiest part of Simpson-Bowles had already been done (discretionary savings), so it would be much harder to achieve the mandatory savings and tax targets today. Other topics addressed in this panel included the state and local tax (SALT) deduction, evaluating scoring models for tax reform, and further discussion on the effect of getting rid of certain tax expenditures.

The second panel featured a bipartisan group of former Congressional tax policy advisers.

Dave Olander, former House Ways and Means Committee Majority Chief Tax Counsel for former Chairman Dave Camp (R-MI), recounted the strengths of Chairman Camp's proposal that should be used as a model for tax reform this year. Chairman Camp set meaningful guardrails for his tax proposal: revenue-neutrality, conventional scoring, a current law baseline, and distributional-neutrality. Olander encouraged policymakers to set clear guardrails as well and get on the same page up front. He added that the political environment has changed, and there is less emphasis on debt and deficits than when Chairman Camp released his proposal. As an example, he cited how in 2015, the PATH Act made permanent certain tax expenditures and received over 300 votes despite not being paid for.

Second to speak was Mac Campbell, former Senate Finance Committee Deputy Staff Director and General Counsel for Chairman Max Baucus (D-MT). Campbell stressed that policymakers must decide whether tax reform is a political or legislative exercise, and if it is going to be a legislative exercise, they need to develop a stable plan to become law. He explained that Chairman Baucus did not even consider using reconciliation to pass tax reform because he believed only bipartisan reform would last, in contrast to the current plan to pass tax reform on partisan lines. Campbell added that the tax reform dialogue must include an honest discussion of the winners and losers.

Next Jim Carter, former Senate Budget Committee Chief Economist & Senior Tax Advisor, took attendees back in time before the Big Six, Chairman Camp, and Chairman Baucus to a proposal by current Senator Ron Wyden (D-OR) and former Senator Judd Gregg (R-NH). A bipartisan tax reform effort negotiated in secret for two years, he explained how Wyden-Gregg ultimately failed to gain traction in Congress but serves as an important example of cooperation. Carter shared five main anchors for the tax reform debate: realistic assumptions, politically realistic goals, bipartisanship, appeal to the left and the right, and think tank evaluations. Tax reform is an accounting, political, and economic exercise, he said, but lacks credibility without these guideposts.

Finally John O'Neill, former tax and budget aide to Senator Wyden, criticized the Bix Six for promising the moon in tax reform but not having solid plans to pay for it. He suggested the Big Six narrow their targets, especially as industry lobbying ramps up, because comprehensive tax reform has so many points of opposition. O'Neill shared that his tax reform rule of thumb is tax reform will not pass in an election year, so policymakers need to finish tax reform this year or risk losing momentum in the face of midterm elections.

In the Q&A portion of the panel, Olander cited the Tax Reform Act of 1986 and Chairman Camp's bill as reasons that tax reform stretching into early 2018 might not be fatal, since both bills came during mid-term election years. Rubin asked Campbell if bipartisanship is a dead end in today's Washington, but Campbell said it is only a dead end if we do not go down that road. He suggested that Republicans could use Democratic votes as political cover for passing less-popular aspects of tax reform, among other benefits to bipartisan efforts. Asked about "magic asterisks" for details to be determined later in Wyden-Gregg, Carter said a model is only as good as its assumptions. In the case of static scoring, he concluded we know it is going to be wrong. O'Neill continued to praise the bipartisan model and expressed concern that many people who think their taxes will be lower after tax reform might end up paying more. 

To conclude the second panel, Rubin asked each former staffer to explain the biggest pitfall of the Big Six framework. Olander named Republicans' emphasis on budget reconciliation to pass tax reform, Campbell cited the political schisms that might cause policymakers to ram through legislation with political headaches, Carter echoed Olander's criticism of reconciliation as a vehicle for tax reform, and O'Neill reiterated his hope for bipartisan tax reform, although he predicts it will inevitably fail by the end of the year.

This event served as an important reminder of the need for tax reform to be done in a fiscally responsible way. We are grateful to all of the participants for sharing their insights on this important matter and hope that forthcoming tax legislation includes pay-fors for revenue-reducing proposals.

Read more on the need to pay for tax reform and options to do so:

From the Tax Policy Center:

From the Tax Foundation: