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McConnell Says Tax Reform Should Be Revenue Neutral

Posted on May 17, 2017 by Asha Glover Dylan F. Moroses

Senate Majority Leader Mitch McConnell, R-Ky., is the latest congressional leader to commit to revenue-neutral tax reform, aligning himself with House Republicans but potentially putting himself at odds with the White House and other Republican senators.

“Well, it will have to be revenue neutral, we have a $21 trillion debt,” McConnell said May 16 on Bloomberg TV. “We added an enormous amount of debt during the Obama years.”

House Ways and Means Committee Chair Kevin Brady, R-Texas, has remained steadfast in his effort to develop a revenue-neutral tax reform product. But Senate Finance Committee Chair Orrin G. Hatch, R-Utah, recently said it’s not “crucial” that tax reform be revenue neutral. He reiterated that stance in the wake of McConnell’s comments, telling reporters he is “not bound to revenue neutrality, although that’s certainly a good goal” for tax reform.

The White House also has not shown a commitment to revenue neutrality, with some estimates suggesting the Trump administration’s tax reform outline released last month could cost as much as $7 trillion over 10 years.

Whether a tax reform bill is revenue neutral will also determine whether it is temporary or permanent. Under the Senate’s budget reconciliation rules, which any tax reform bill is expected to be subject to, legislation cannot increase the deficit outside the 10-year budget window — so if the legislation is not revenue neutral, its policies would have to sunset.

The Senate has largely been silent on which pay-fors would be acceptable in tax reform. McConnell dismissed one of the main revenue raisers included in House Republicans’ “A Better Way” tax reform blueprint — the controversial border-adjustable tax — saying it couldn’t pass the Senate.

Senate Finance Committee member Pat Roberts, R-Kan., agreed. When asked about McConnell’s statements on revenue neutrality and the border-adjustable tax, Roberts told reporters, “I think that's a pretty accurate statement.”

Fellow Senate taxwriter John Thune, R-S.D., suggested that economic growth stemming from tax reform could offset some of its costs, citing in particular the growth effects of lower statutory tax rates and  “quicker cost recovery.”

Tax Reform Timeline and Healthcare

While most tax reform proponents in Congress and the White House have remained committed to passing legislation this year, McConnell said he didn’t want to put a strict timeline on getting tax reform done. But he added that Republicans “certainly want to try to complete it this Congress.”

Roberts, meanwhile, said tax reform “might be pushed off until September.” The original timeline for tax reform had included an August deadline.

Another priority for the Senate is healthcare legislation. Thune is planning an amendment to the House-passed American Health Care Act that would increase the amount of that bill’s proposed individual tax credit for the purchase of health insurance. Thune said he believes his amendment will help win more support for the bill, but noted the chamber is still waiting for a Congressional Budget Office estimate of the legislation, which is not expected until the week of May 22.

“Hopefully, when we get that, we’ll find out how much fiscal space [we have] carved out by the House to help us with the redesign of the tax credit in the Senate,” Thune said.

Thune added that there are both age and income adjustments in his provision and that there are talks of including geographical adjustments to the tax credit. “It’s a work in progress, and a lot of it is going to depend on scoring we don’t have yet,” Thune said.

David van den Berg contributed to this article.