U.S. President Donald Trump has made it clear that tax reform is an integral part of his political agenda. On April 26, his administration rolled out a plan that suggested a cut in the corporate tax rate from 35 percent to 15 percent; simplification of the various tax brackets from seven to three; and doubling tax deductions for both single and married people. The Tax Foundation, a D.C.-based think tank, estimated that it could increase the U.S. deficit by up to $390 billion a year.
While the plan has yet to become a reality, Republicans seem confident of enacting tax reform by the end of the year. On June 20, House Speaker Paul Ryan gave a speech to U.S. manufacturers in which he said he hoped a new tax system would be in place for the start of 2018. Though details are scant, the GOP has made it clear it hopes to bring in significant tax cuts which, it believes, will boost economic growth and create jobs. (The bipartisan Joint Committee on Taxation has already said this is not guaranteed.)
Ryan also has made it clear that he would like any tax cuts to be permanent. Congressional rules prevent this unless the tax cuts pay for themselves and not add to the federal deficit. Ryan's fellow Republicans, however, are considering measures that would allow them to circumvent this.
The GOP is hoping to pass its tax changes using a process called reconciliation, which requires the party to simply gain a majority vote in the Senate rather than a filibuster-proof super majority. (Republicans hold 52 of the Senate's 100 seats.) But the rules state that any budget plans that would add to the deficit must expire after 10 years. That measure, whose aim is to keep U.S. debt down, would prevent Ryan from implementing a permanent tax change.
Instead, Senator Pat Toomey, a Republican from Pennsylvania, is hoping to persuade Ryan of the need to alter legislation so that Republican tax cuts could last for two decades or longer. He already has the support of Senate Finance Committee Chairman Orrin Hatch, who has described the 10-year window as "problematic." Treasury Secretary Steven Mnuchin has said that if he can't get the Democrats to back the Republicans' tax plans, then he too would be open to lengthening the 10-year deadline.
It is a surprising move for a party that spent its time criticizing then-President Barack Obama for not doing enough to bring down the federal deficit. Though the Congressional Budget Office (CBO) has said the deficit will fall this year from $585.6 billion in 2016 to $559 billion, that is dependent on current laws remaining the same. If the Tax Foundation's estimate is correct, then GOP tax reform could see this figure shoot up by hundreds of millions of dollars.
Uncommon Knowledge
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