By Richard Rubin
WASHINGTON -- The House Republican overhaul of the tax code is being written to expand the economy and avoid increasing budget deficits, the lawmaker leading the effort said on Tuesday.
"We designed our blueprint to break even within the budget, considering that economic growth," Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee, said at The Wall Street Journal's CEO Council. At the same time, Mr. Brady said, if there are some deficits, he would accept them if the result was stronger growth.
Avoiding long-run deficits could make it easier for Republicans to pass their plan under budget rules that avoid a Senate filibuster and forbid increasing future deficits. But that approach also requires policy and political trade-offs and could rely on budget gimmicks such as using one-time revenue to pay for permanent tax cuts.
Mr. Brady also rejected an idea that had some traction before Donald Trump won -- using a one-time tax on more than $2 trillion in U.S. companies' stockpiled foreign earnings to pay for U.S. infrastructure. The House plan, Mr. Brady said, uses that money to lower tax rates and remove the tax burden on U.S. companies' foreign sales.
Republicans released a summary of their plan earlier this year but they are still writing the legislation and haven't shown how it would break even. Their efforts gained new steam with Donald Trump's victory in last week's presidential election. A tax overhaul is now one of the party's top priorities for early 2017.
The House plan would lower individual and corporate tax rates, limit some tax breaks and change the way the U.S. taxes multinational companies' foreign operations.
The plan will be analyzed using what is known as dynamic scoring, under rules changed by Republicans when they took control of Congress. Dynamic scoring for tax cuts assumes that policy changes can spur economic growth and thus cover some of their own costs by creating new tax revenue.
The nonpartisan Joint Committee on Taxation has developed economic models to analyze the potential revenue generated by tax cuts, though their estimates tend to be more modest than those from conservative think tanks.
Mr. Brady said his plan would reduce government revenue in the early years but then generate economic growth and revenues after that.
The Tax Policy Center, a project of the Brookings Institution and the Urban Institute, estimates that the plan would reduce revenue by $3.1 trillion over a decade and foresees limited effect on growth. The Tax Foundation, which assumes the U.S. economy is more sensitive to tax cuts on capital investment, said the plan would reduce revenue by $191 billion over a decade.
There are some differences between the House plan and President-elect Donald Trump's plan. Mr. Trump's plan features a 15% corporate tax rate, while the House plan sets it at 20%. Both are big cuts from today's 35% rate.
Mr. Trump's plan would lose at least $4 trillion in revenue over a decade without accounting for economic growth. Even his campaign didn't suggest that the tax cuts alone would pay for themselves.
Mr. Brady said he thought gaps between the proposed rates could be bridged.
"Yes, I think we can find common ground on the rate, but I don't think the rate's enough," Mr. Brady said, pointing to changes on capital expensing and international tax policies that he says would encourage economic growth.
Still, industries will split and the plan will face political opposition. Senate Republicans haven't signed onto either the House plan or Mr. Trump's plan and they may alter it as the tax rewrite moves through the legislative process.
Mr. Brady, who also oversees trade policy, said the Trans-Pacific Partnership is "on hold," not dead. He said Mr. Trump should use enforcement tools against dumping of products rather than withdraw from trade agreements.
"Take the opportunity to make those agreements better," Mr. Brady said. "Keep what's good in there, and there is plenty that levels that playing field in a key way for the region."
Write to Richard Rubin at email@example.com
(END) Dow Jones Newswires
November 15, 2016 14:36 ET (19:36 GMT)
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