Vote Notes: Tax Reform 2.0

Today, the House voted on the last of the three bills that, together, are being referred to as “Tax Reform 2.0.” The two smaller bills were voted on yesterday and the bigger bill came this morning. 

These three bills consisted of the following…. 

HR 6756: American Innovation Act - It allows new businesses to deduct more of their startup costs and to maintain more of their tax losses. The Congressional Budget Office scores its total cost at $5.42 billion over 10 years.

HR 6757: Family Savings Act - It reduces limits on retirement account contributions for those over 70 as well as minimum distribution requirements. Expands eligible uses of 529 education savings accounts. Creates tax-advantaged universal savings accounts to help people save more. Lets new parents take up to $7,500 out of their retirement accounts to pay for the new baby. The Congressional Budget Office scores its total cost at $20.97 billion over 10 years.

HR 6760: Protecting Family and Small Business Tax Cuts Act - It expands all of the temporary provisions in the Tax Cuts and Jobs Act. The Congressional Budget Office scores its total cost at $632 billion over 10 years.

Obviously, this last bill, HR 6760, was the overwhelming bulk of “Tax Reform 2.0.” This bill would simply eliminate the expiration dates for all of the changes to individual taxes in the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017. It would make them permanent. 

I really struggled with this measure because I think in many ways it’s a gimmick by Republicans. Then again, it’s an election year, and gimmicks are always in vogue in election years. 

There were three things at play that gave me pause on this measure.

One, it’s widely recognized that HR 6760 - which is the overwhelming majority of the tax cut package - will not be picked up by the Senate. This makes it a messaging bill and not much more. Let me be explicit and repeat this point. I think the two small measures will pass in the Senate and be signed into law by the president but the big one, which dwarfs the two more technical business and retirement savings tax cuts, won’t move in the Senate. 

Two, you can’t increase spending a few days ago in the continuing resolution by $81 billion and then turn around two days later and cut taxes and claim that you’re allowing individuals to keep more of their money. It’s a facade. A deficit is nothing more than a deferred tax, and increasing spending while cutting taxes simply defers taxes. It doesn’t eliminate it. It increases it, given financial compounding, and in this regard, the tax bill represents political sleight of hand. In all this, one could technically argue it could be a deferred cut in spending, but given budget history on that front, I think one needs to be realistic and that points it totally in the direction of future tax increases. 

Three, this is particularly the case given the increase tariffs that the administration is instituting. I don’t know of a political figure in Washington going home and bragging about the increased tariffs and the way in which they will take money, power, and authority away from individuals. They’re only talking about the second part of the equation, which is the tax cut. In this case, the tax cut would lower money coming in to Washington by $117 billion next year - and that’s celebrated. Not mentioned is the $40 billion that will be taken from consumers with the tariffs. 

So for these three reasons, my bottom line is that the whole thing feels fake. 

And at the level of the body, it is indeed so…but this still leaves me not with an account for everyone else’s votes but instead my own. 

On this, I’ve been consistent. I have fought to downsize Washington’s influence in our lives, and I have concurrently fought the growing deficits that I think will encumber our lives and those of our children. 

I’ve been called Dr. No because of the many different spending measures that I’ve voted against. Sometimes, those have been votes I’ve taken completely alone; at other times, I’ve been one of a handful of nos in a body of 435 members. But each of these votes were about keeping power and authority at the local or individual level rather than in Washington. There has been a consistent philosophical bend in this direction, which is why the likes of the National Taxpayers Union, FreedomWorkss, the The Cato Institute, or a host of other advocacy groups have consistently rated me at, or near, the top of the entire Congress in efforts to watch out for your wallet. 

Spending measures are not the only proxy for freedom, though. Tax policy is as well. It’s for this reason I have also consistently voted for tax cuts because whether on the spending or tax side of the equation, I am always, again, on the side of keeping more money in the hands of individuals rather than the hands of people in Washington. 

So the bottom line is that while this bill amounted to nothing more than a messaging bill, I thought it was important that I be consistent with where I’ve always been and that is on the side of the taxpayer. Wherever we can, I think it’s important to pull power and authority out of Washington and to vest it at the individual and local level. I have been consistent in doing so both on the spending and tax fronts and, accordingly, voted as I did. I only wish that, as a Republican body, we were more consistent on both sides of the ledger. 

Let me include two other interesting facts, though they’re irrelevant given the way that this bill won’t make its way through the process. 

One, the tax bill would have pulled this down two-tenths of 1% from our historic revenue stream of the federal government. Here are the numbers on this. Over the past 50 years, the federal government has taken in an average of 17.4% of GDP each year in tax revenue, while it has spent an average of 20.3% of GDP. Over the next ten years, the federal government is projected to take in an average of 17.5% of GDP in tax revenue, and this bill would reduce that average to 17.2%. 

This is not a monumental change and reflects the way in which, whether in a high tax rate or a low tax rate environment, you can only squeeze but so much blood from the American taxpayer. In high-rate environments, people work less or employ tax-avoidance measures. In a low-rate environment, they pay more. 

Meanwhile, our spending has continued to ramp up and is projected to average 22.5% of GDP, which is more than 2% higher than the historical average over the last 50 years. Once again, this illustrates that we have a spending problem in Washington. 

Two, the other interesting thing about this bill was the way in which it also attempted to game the rules of the Senate. It needs to be remembered that the original tax bill of December passed through a process called “budget reconciliation,” which requires only 51 votes in the Senate instead of 60...but also comes with a number of rules and restrictions. One of those rules states that any tax cuts passed through reconciliation must fit within a certain box in terms of cost, which in this case was $1.5 trillion. If the cost of the tax cut bill were to have exceeded that number, before accounting for increased economic growth, the bill could not have passed. Thus, all the changes the bill made to individual taxes, like instituting new, lower tax rates, doubling the standard deduction, expanding the child tax credit, and raising the exemption threshold for the estate tax, were all set to expire after 2025. This bill comes back and takes another bite at the apple in making the individual tax cuts permanent - just as they were made permanent in the original bill on the corporate side. But in so doing, it really does represent a way around reconciliation rules of the Senate and is yet another reason to look with a very skeptical eye at how this bill was brought to the House floor.