I want to pick up on… the constraints of reconciliation rules as well as [the possibility that] the White House might come out with a plan that has no offsets. It is a very, very important point here. A plan of business tax cuts that has no offsets… is not a thing. It’s not a real thing and people can come up with whatever plans they want. Not only can that not pass Congress, it cannot even begin to move through Congress day one.
There are political reasons for that. Number one, members wouldn’t vote for it. But there are also statutory procedural legal reasons why that can’t happen… There is this magic unicorn running around, and I think one of the biggest threats to the timeline on tax reform is the continued survival of magic unicorns — people saying “Why don’t we do this instead?” when this is actually something that cannot be done. And as long as that exists, it’s hard to move forward by getting people to go through what the Speaker refers to as the stages of grief for tax reform where you have to come to the realization that there are tough choices that have to be made. And you cannot escape those tough choices.
[The reconciliation rules] don’t say that tax cuts have to sunset in 10 years. They say that you cannot have the deficit increase beyond the 10 year window… If your permanent tax reform that is fully offset with the base broadening forever, you are fine. You don’t have to make anything sunset under the reconciliation rules. You can have permanent tax cuts that are paid for in the out years. You have legislation that has no offsets, no base broadening, so it’s just tax cuts. You either have to get Democrats to support it, which they will not. Or you have to do it through reconciliation so you can do it on a partisan basis with only Republican votes.
Again, reconciliation says you cannot increase the deficit after 10 years… Here is a data point for folks. A corporate rate cut that is sunset after three years will increase the deficit in the second decade. We know this. Not 10 years. Three years. You could not do a straight-up offset three-year corporate rate cut in reconciliation. The rules prohibit it.
You might be able to do two years. A two year corporate rate cut would have virtually no growth effect. It would not alter business decisions. It would not cause anyone to build a factory. It would not stop any inversions or acquisitions of US companies by foreign companies. It would not cause anyone to restructure their supply chain. It would just be dropping cash out of helicopters on corporate headquarters for a couple of years.
Institute of International Finance Policy Summit, Tax Policy