Donald Trump promised significant tax reform and has a Republican Congress to work with, but the leader of the nation’s largest grassroots taxpayer organization says the window of opportunity is small and the GOP better be ready to tackle spending if want to keep deficits from exploding.
National Taxpayers Union President Pete Sepp says Republicans are largely united in what they want in a reform package but he says they all need to be on the same page before Trump takes office.
“There is a window of opportunity,” said Sepp. “I think the president and Congress need to get on the same page as quickly as possible. That means holding staff-level meetings right now, even before the next Congress, to determine what differences they have and how they’re going to move forward.”
“All of these elements have to figure out how they’re going to move forward on a common plane. Otherwise, they’re going to get bogged down in details and they’re not going to be able to secure the votes and move the process along the way they need to,” said Sepp.
There multiple plans with similar, but not identical, provisions. In addition to Trump’s plan, House and Senate Republicans have also outlined their respective wish lists. Sepp says some differences are small, such as Trump wanting to lower the corporate tax rate to 15 percent while House Republicans prefer 20 percent.
But there are other differences as well.
“Trump would sort of equalize investment tax rates with the new personal tax rates. The House would do something different there. There are also differences in repealing itemized deductions, or limiting those deductions, and how business expenses might be treated over the long term,” said Sepp.
Simplification is another major goal of many reformers pushing for an end to an endless list of exemptions and loopholes. And while there are lobbyists committed to protecting virtually every one of those tax breaks, Sepp thinks simplification can happen this time.
“I think a lot of progress can be made, especially on the corporate side. Even business tax lobbyists are coming to realize that the current system as become so complex, that all of the loopholes that they have to figure out and comply with every year just aren’t worth the effort,” said Sepp.
But he says getting Republicans on the same page as soon as possible is critical since getting the reforms through a closely divided Senate will not be easy.
“Republicans will have, at best, 52 seats in the Senate. First, their caucus needs to be united. That assumes that there is no filibuster on the part of Democrats, or that Republicans use the so-called reconciliation process to get around the filibuster and get a tax reform plan through their chamber. All of those things need to be thought of right now,” said Sepp.
All of the GOP tax plans are likely to trigger higher deficits, at least in the short term, unless the other side of the balance sheet is addressed as well. In addition to tackling the tax code, Sepp wants to see an equally aggressive push to rein in spending.
“Republicans are going to have to mindful of the long-term impact and figure out ways to reform the spending side of the ledger so those shortfalls are kept under control,” said Sepp.
He says the most obvious target are entitlements, an area Trump has refused to consider cutting or changing in any meaningful way.
“What they need to do is figure out some common ground on entitlement reform especially. That was something that Donald Trump essentially took off the table. That is an incredibly unwise move if we want to be honest with the American people and have fiscal reform on both sides of the ledger,” said Sepp.
He says the only other areas to cut are defense or discretionary spending and Trump has given no indication of wanting to do that either.
“Donald Trump has said he wants to increase defense spending and boost infrastructure spending by upwards of a trillion dollars. Those plans are going to have to be modified and there’s going to have to be consideration of entitlements. This is not going to be some era of prosperity for growing the federal government. It’s going to have to be kept under control,” said Sepp.
Sepp predicts there is a seven in ten chance of tax reform with Trump in office as opposed to about a three in ten chance with Democrats in charge.
