Rep. Paul Ryan believes a tax reform plan the House is working on will mean 3 percent annual growth next year, something the country has not seen for years.
That growth would offset losses in tax revenue from the tax cuts, the House speaker said Friday in a meeting with The Gazette Editorial Board.
“You get growth above 3 percent, you’ll have wage increases. You’ll have a much healthier economy,” he said.
Ryan’s counterpart in the Senate, Majority Leader Mitch McConnell, has called for a revenue-neutral tax plan. Revenue-neutral tax reform would mean the federal government would see no change in taxes coming into its coffers, and that would mean some would pay less taxes while others pay more.
Ryan’s approach is to create a system that reduces everyone’s tax rates and to make up the loss in tax revenue with economic growth, he said.
“We know that if we’re taxing ourselves at much higher rates than foreign competition, and we lower those rates, we won’t lose revenues. We’ll actually get more economic growth, ... and that will help us sustain the revenue loss, and the result will be faster economic growth. We do know that,” he said.
The Gazette contacted two UW-Madison economists for their reactions.
Retired professor Andrew Reschovsky rejects the idea that cutting taxes leads to economic growth.
“It’s conservative theology, ... but it’s not linked to any hard evidence to support that contention, and I’m quite confident that if you talk to 100 economists, you would get very similar points of view from most of the 100 if not all,” Reschovsky said.
Tax cuts under presidents Ronald Reagan and George W. Bush didn’t lead to greater growth, Reschovsky said, and Kansas’ experiment with cutting taxes was catastrophic.
Reschovsky agreed with Ryan that the corporate tax code—with its high rates, and numerous exemptions and deductions and special provisions that lower corporate taxes—needs reform.
Economist Noah Williams said lowering tax rates on individuals would result in some growth, but it would be a net loser for tax revenues.
However, cutting individual income taxes could still be worthwhile because it can generate higher incomes, employment and investment, which is preferable to the current situation, Williams said. But in that case, those positive results must be balanced against potential negatives of lower government spending because of lost tax revenue.
Some research suggests lowering taxes on corporations, however, could bring a net gain in tax revenue, Williams said.
Ryan said the tax code was last reformed in 1986, and the rest of the industrialized countries changed their tax codes since then, putting the United States at a competitive disadvantage.
“It is killing us,” Ryan said, because U.S. businesses are moving overseas and investing there.
A reformed tax code would encourage companies to stay in the United States and invest here, Ryan said.
“I’m not saying all tax cuts pay for themselves because they don’t, but the faster economic growth helps offset part of the revenue lost,” Ryan said.
Plugging tax loopholes also will help staunch revenue loss, Ryan said, predicting that members of Congress will be facing stiff pressures from business lobbyists to protect those loopholes as the process goes forward.
“There are certain taxes where we’re way too high, and because we’re too high, we’re losing growth. We are losing jobs. We are losing companies. We are losing headquarters all the time,” Ryan said.
“If we lower those rates, especially on businesses, we know we’ll keep those businesses in America, we’ll keep that economic activity in America, and we’ll encourage more economic activity in America,” Ryan continued.
But can Congress do it?
“That’s going to be a big test of ours. That’s why it hasn’t happened in 32 years,” Ryan said. “... I’ve long believed we’ve got to take on the gantlet of K Street (lobbyists) and all the special-interest groups that are out there, trying to protect the status quo carved out in the (tax) code because this is one of those deals where the general interest is so overwhelmingly more important than the special interests. ... I do believe that the political planets are aligned to get this done.”
Ryan said he has heard from a handful of Democrats who agree, “especially the Democrats from the Midwest, from manufacturing/small business states that know this needs to be done.”
Asked for how Ryan knows the tax plan would work, an spokesman pointed to a study of the 2016 House Republicans’ tax plan by the Tax Foundation. The study shows growth offsetting $2.4 trillion in tax revenue losses over a decade, but growth would not make up for all the losses. It leaves $191 billion in losses over the next decade.
Ryan spokesman Ian Martorana said that analysis proves the concept, and the details in the Republicans’ new tax plan will succeed in balancing tax revenue losses with growth.
Williams called the Tax Foundation well respected, but he said studies by the Brookings Institution and Tax Policy Center show less growth.
“The the consensus is this would have a stimulative effect. Whether that would get to 3 percent, that’s less clear,” Williams said.
On other topics Friday, Ryan:
- Said “It’s too early to say” when asked to rate President Donald Trump’s performance. “I wouldn’t look to Twitter to judge performance. I would look to results to judge performance, and we’re in the midst of trying to achieve these results.”
- Said he hopes the Senate returns next week to a repeal/replace plan for the Affordable Care Act, which he said is collapsing from its flaws.
- When asked if Congress should try a more bipartisan approach to health care, said that does not appear possible because Ryan believes “the vast majority” of Democrats in Congress want a single-payer system, and that’s a non-starter for Republicans. “On this particular issue, we just really disagree.”
- Noted the many bills the House has passed with “huge” bipartisan support and little notice from the press on military veterans and technical education, for example. “Watch what we’re going to do on Hurricane Harvey,” he said.
- Said not to expect one big infrastructure-improvement bill. The House is close to a bill that would update the antiquated federal air traffic control system along with fixing runways, he said. An agenda for fixing roads, bridges, pipelines, and rural broadband will start to be introduced late this year, he said.
- When asked about Trump lashing out at McConnell over health care: “I think it’s a device and tactic that works for him. It’s not my style. I don’t think it’s particularly helpful. He knows what I think about this. ... I talk to him a great deal. If he does things that I think need to be spoken out against, I do—Charlottesville, the sheriff thing (pardon of former sheriff Joe Arpaio)—but more often than not, I find it more productive to have these private conversations with him.”
- The board did not get a chance to ask all the questions it wanted. One prepared but unasked question was whether Ryan wants the votes of white supremacists, who have shown affinity for the Republican Party. A spokesman responded to that question later by email with one word: “No.”