Trump Budget Plan Offers No Clarity, and So Far No ‘Magic Unicorn’

https://www.nytimes.com/2017/05/25/us/politics/trump-budget-tax-policy.html

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The unveiling of President Trump’s first budget and the initial congressional hearings on overhauling the tax code should have brought clarity to the administration’s top legislative priorities.

That didn’t happen.

Instead, testimony from Mr. Trump’s top economic advisers cast even darker shadows over a murky legislative process that has fallen well behind schedule. Their explanations of the budget and their tax plans in public seemed to generate more questions with almost every answer.

Here’s where things stand.

The most confounding aspect of the White House budget was that it appeared to double count the effects of economic growth.

It appears to improperly use the economic expansion that it predicts its policies will produce to both pay for tax cuts and reduce the deficit.

Senator Ron Wyden, the ranking Democrat on the Senate Finance Committee, told Treasury Secretary Steven Mnuchin on Thursday that the administration was using accounting that would “make Bernie Madoff blush.”

After being called out for using fuzzy math, Mick Mulvaney, the White House budget director, explained at a congressional hearing on Thursday that the administration used a tax plan placeholder in its budget that was revenue neutral on a “static” basis.

The meaning? That it was not counting on economic growth to pay for its hypothetical plan.

This implied that the White House planned to compensate for any revenue lost through tax cuts by curbing deductions or finding ways to raise revenue. But that contradicts what the administration has been saying for months.

Mr. Mnuchin has repeatedly called himself a big believer in “dynamic scoring” that predicts tax revenue will increase with strong economic growth.

He reiterated at a separate hearing on Thursday that the tax cuts would in fact be paid for by economic growth and unspecified measures to broaden the tax base.

If economic growth is not going to be the primary way to “pay for” tax cuts, the White House and Republicans in Congress are going to have to come up with the money from other places.

The problem is that the White House has been down on some of the biggest potential revenue raisers that Speaker Paul D. Ryan has proposed.

Mr. Mnuchin doused more cold water on the border-adjustment tax this week, revealing his serious concerns about the impact of taxing imports and exempting exports from taxation.

That tax would have raised about $1 trillion over a decade. The White House also wants to maintain interest deductibility for businesses — a provision that could raise another $1 trillion if eliminated.

While Mr. Ryan and Representative Kevin Brady remain fierce proponents of the concept, it became clear this week that even Republicans on the tax-writing Ways and Means Committee are deeply skeptical.

Mr. Brady and Mr. Ryan are now discussing modifications and phase-ins for the idea, but the White House appears to have no interest at all.

For his part, Mr. Brady appears to be ready to compromise but not prepared to scrap the border tax. At a conference this week, he said that if anyone had a more pro-growth tax proposal they should “bring it.”

If Republicans do not find a way to pay for their tax cuts, they most likely will be temporary and it would break Mr. Trump’s promise to balance the budget.

“The White House is still looking for a magic unicorn,” said Itai Grinberg, a tax policy professor at Georgetown University’s law school.

At his confirmation hearing earlier this year, Mr. Mnuchin pleased Democrats when he promised that Mr. Trump’s tax plan would not be a tax cut for the rich. Hoping to hold him to that vow, they called the pronouncement the “Mnuchin rule.”

In testimony this week, Mr. Mnuchin danced around that promise.

He insisted that it was Mr. Trump’s “intent” to focus on middle income tax cuts. But he is not ruling out the possibility that the wealthiest taxpayers could see their tax bills get smaller, too. “I want to be careful about not guaranteeing anything,” Mr. Mnuchin said.

He also maintained that the White House was working collaboratively with the Republicans in the House and Senate on a tax plan and that all of the president’s wishes might not make it into the final bill.

Pressed on whether Mr. Trump would veto tax legislation that benefited the 1 percent, Mr. Mnuchin said: “The president will look at the overall package.”

With a tax overhaul by August off the table, Republicans are now focusing on getting something done before Christmas.

But first they need to find a way to repeal and replace the Affordable Care Act. And pass a budget resolution. (There are also the distractions of investigations.)

And then a new problem was injected into the mix: the federal debt ceiling. Mr. Mulvaney revealed on Wednesday that tax revenue is coming in a little bit slower than expected. And it is running out of time more quickly than expected.

So Congress will have to raise the debt limit sooner rather than later. Mr. Mnuchin urged members of Congress to pass a debt ceiling increase before they headed home for the summer break.

This is easier said than done. Many Republicans, including members of the House Freedom Caucus who opposed previous increases in the debt ceiling without spending cuts, will want concessions for raising it.

If that fight turns into a time-consuming brawl, it could well push tax reform into 2018.