Tax bill machinations

Posted on March, 22 2017, 20:42

While Obamacare repeal and replacement is at the top of the news from Capitol Hill these days, the behind the scenes debate over the shape of the tax reform bill expected later this year is going hot and heavy.  Those who know the work of the American Business Defense Council understand we are deeply concerned in the shape of that portion of the bill dealing with repeal of the Death Tax.

In a recent conversation with one of the top members of the tax-writing House Ways and Means Committee he made it clear to me that they consider repeal of the Death Tax a very desirable part of the package -- one that will garner support.  That was music to my ears.

But, we still don't know what specific provisions the House will include in its bill, and whether or not the Senate will accept them. 

The Tax Foundation has recently come up with an additional analysis of repeal provisions and the good news:  of the roughly $1 trillion of added GDP the Paul Ryan "Better Way" tax bill would generate to the economy.  About 10% of that increase will come from the jobs, wealth, savings and work generated by Death Tax repeal.   That is a major portion of the stimulus provided by the bill and a great selling point for repeal of this onerous tax.

A bright young Tax Foundation economist by the name of Alan Cole has a study which points the great contrast between static and dynamic scoring of the 2016 Trump tax proposal (not significantly different than the Better Way proposal).  A static analysis shows a ten year revenue loss as a result of Death Tax Repeal of $240 billion(!).  But when one takes into account the various added work, investment and risk and tax revenues that would be generated by repeal, the ten year loss is only $19 billion.  Also, importantly, is that after the sixth year of the ten-year window, the repeal of the Death Tax is a net-revenue raiser.

This is of particular importance because an arcane Senate stricture called the "Byrd Rule" says that reconciliation bills cannot be used to adopt permanent change in the law if it would increase the deficit after the ten-year budget window.  If I'm correct, and if the Tax Foundation's interpretation of the score of the Death Tax repeal is adopted, then permanent repeal may be permitted under the Byrd Rule.   It will be generating revenues in years, 7, 8, 9, and 10 of the budget window, and in out-years.

There are entirely too many "ifs" in this scenario, and our job is to eliminate as many as possible.  Will the House and Senate use sound, dynamic scoring?  Will the computer models they use be as responsive as the model at the Tax Foundation? 

Finally, if the number-crunchers at the Joint Committee on Taxation (JCT) choose to stick to their old static-scoring models and ignore reality, what can be done?  Ideally, the Congressional leaders who sit on the JCT would direct their staff to come up with a good score.  An alternative procedure under the Budget Act would allow each house of Congress to decide what score it wants.  A resolution in each house would simply opt for the Tax Foundation's Death Tax repeal score.  But, could we generate enough support in House and Senate to get them to  reject the JCT score and adopt the Tax Foundation's?  This procedure has only been done once to my knowledge since the Budget Act was adopted in 1974.

Clearly we have a majority of both houses of Congress who would support full repeal.  But just as clearly, there are potholes in the road.  We have to work around them, over them, and through them.