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Hugh Hewitt Book Club

House Ways and Means Chairman Kevin Brady on the Status of Tax Reform

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The audio:

05-24hhs-brady

The Transcript:

HH: I’m joined by Chairman Kevin Brady, representative, a member of Congress from Texas, who is chairman of the House Ways and Means Committee. Good morning, Chairman Brady, good to have you as always.

KB: Hey, good morning, Hugh, thanks for having me.

HH: Good to have you. I want to run down the five major promises of the Trump campaign

JB: Yeah.

HH: A Supreme Court nominee from his list – check. Repeal and replace Obamacare – half check. It’s out of the House. It’s on its way to the Senate.

KB: Yes, sir.

HH: Building the wall – quarter check. Some planning, not much money. 350 ship Navy, completely broken, breached by the Mulvaney budget, a disaster for the President. I want to talk to you about that. And then a corporate tax cut from the ridiculous rate. That one’s in your court, so let’s start there, and we’ll come back to the Navy. How fares the progress of the corporate tax cut rate?

KB: Look, it’s moving along. We’re laser focused on it. Look, I recognize, I think everyone does, tax reform is the fight of a lifetime in Washington. But with President Trump’s leadership, we’re going to deliver it this year. We do have, Hugh, a lot of work ahead on this, because here’s what we’re seeing. Look, we just can’t compete around the world. My view is you can’t make a few tweaks in the corporate income tax and call it a day. It just won’t bring those jobs back. So we’ve got a lot of work to do with President Trump and his team and the Senate to get this done. But we are not, I know the narrative in Washington is everyone’s distracted from all these other issues, we can’t get this done. I think that’s absolutely baloney. We are going to get it done.

HH: Now the opportunity to do that is the reconciliation instructions that will accompany the 2018 budget, right?

KB: Yeah.

HH: That’s where you have to get it done.

KB: Yeah, it’s why that, this budget that the House is going to be taking up in the weeks ahead is so critical, because balancing that budget within ten years as Republicans have fought for the last eight years gives us the budget reconciliation process, allows us to get tax reform on the President’s desk.

HH: Now that’s where it comes into tension with the goal I am most focused on. I know tax reform is necessary, but without an American military adequate to the task to provide for the common defense, is breached. The President promised a 350 ship Navy, Mr. Chairman. It’s not in this budget. In fact, it goes backwards. What is the House going to do about that?

KB: Well, Hugh, I have to tell you, I’ve been so focused on tax reform, my approach on the budget was to go straight to the job growth, tax reform, and health care related issues in that budget. And so I will dig deeper. I believe strongly in a, we’ve got to rebuild our military. What exactly did they put toward that goal? Do you recall?

HH: Nothing. They took a billion dollars out of the shipbuilding account. They added readiness funds, they add a nuclear modernization fund, which are both necessary, missile defense funds went up. But the President made a promise in Philadelphia of a 355 ship Navy. It’s explicit. It’s expressed. A lot of people voted for him. It’s a jobs program as well, and it’s necessary. And your old colleague, Mick Mulvaney, just pulled a fast one on everyone and says he had to do it because of readiness. I don’t think it’ll stand, and I don’t think you say oh, we need the tax cut money. I just don’t get it. I understand, you had a hearing yesterday to move forward with the tax cut, but it seems to me that a lot of people expect corporate tax cut, not much else, but they do expect 350 ships, and the priority ought to go to the ships.

KB: Well, I actually think this is where House Republicans, certainly, and the President have a lot in common. We both believe that our national security and Defense is our highest Constitutional responsibility. So look, I hope our appropriations teams work with them to get those numbers up.

HH: Now let me talk to you about the corporate tax rate, and then come to some tax simplification. There was talk early of a window for repatriation that is even lower for corporate profits stranded abroad. Is that on your agenda, Kevin Brady?

KB: Yes, but to make it permanent. So first, you know, we bring those dollars that are stranded back here over the next number of years, and going forward, we propose the tax rate to bring your earnings back to be reinvested in America be zero going forward. And so we, it’s a two-tiered approach, both of them are pro-growth.

HH: All right, now talk to us a little bit about timetable, and because the budget has to be passed. It has to have reconciliation instructions. And then tax reform has to be passed after that. When does this all happen if you guys are taking August off again?

KB: Yeah, so…

HH: Not taking it off, going back to the district. John Campbell…

KB: Yes, sir. And I think August is going to be very critical from the standpoint of, on tax reform through the summer and fall making the case on why we can’t, we can’t get jobs back if we stick with the tax code we’ve got right now. And so we’re focused on not the month, so much as the year, which is delivering in 2017. And I’ll be honest, after 30 years of being stuck with this current tax code, delivering it in one year will be a big achievement. And we’re focused on it.

HH: If it doesn’t get done this year, I don’t think it gets done. I really don’t. So I think you have to get it done this fall.

KB: That’s what we’re focused on.

HH: All right, so Chairman Brady, in terms of the big three deductions, the President has backed off of the home mortgage interest deduction, changing that.

KB: Yeah.

HH: And the charitable deduction has never been in any serious person, but the state and local income tax deduction, you’ll wipe out the Republicans who are left in blue states if you do that.

KB: Well, I don’t think so, because if you look at the overall budget, in the tax cuts, and protecting more of those first dollars that families earn at every income level, you know, my belief is that families will see at every income level tax relief from this. So yes, are we ending what essentially is a subsidy for higher state and local taxes and taxpayers from different parts of the country subsidizing each other? Our proposal is look, do you want something as simple and fair as a postcard where we lower the rates, and everyone just pays their own local taxes? So for the first time, Washington doesn’t care where you choose to live or work. That’s your call. We’re going to lower your taxes, period.

HH: Now Mr. Chairman, I understand that you’re a courageous guy, you’ll come back. But let me be blunt. Not only is it political suicide to do that, it is absolutely political suicide to say to Californians we’re not going to deduct, I don’t live there anymore, so it’s not by problem anymore.

KB: Yes, sir.

HH: But I know people who will have to leave that state, New York, other high tax states, and by the way, Wisconsin and Pennsylvania. The President broke the blue wall there. You will be giving them a 6 or 7% tax hike if you remove state and local deductions. So it’s political suicide, but also on a fairness deal, people have built their lives around those three deductions, which is why they existed in 1986 tax reform. They are reliance built in. I made this argument in my book, The Fourth Way. Why are we hell bent on a politically suicidal unfair crushing of people who live in high tax states?

KB: So here’s the question we’re asking the American people. You want the current tax code where we keep everyone’s rates high so that some can get help with their state and local taxes? Or do we want to lower the taxes on everybody so everyone gets help with state and local taxes? Our view is the American public wants it, lower rates, and everyone, not just those who itemize, everybody gets help when, and whether it’s their state and local taxes, property taxes, sending their children to college, getting their parents in the nursing home, whatever your priority is, you know, lowering those taxes and letting you apply those yourself. That’s the question we’re asking, and so we’ll see, Hugh, if people want to go to this simpler postcard-style approach, or they may want to stay with the current tax system, the high rates, and subsidizing a few.

HH: And I believe that is fundamentally out of touch, Chairman Brady, with the average American Republican voter in the last election who want a postcard. But you can keep those three deductions. You also have to keep the casualty loss. You have to keep a number of deductions. But nobody ran on that. That’s what I keep coming back to.

KB: Well, I…

HH: I don’t recall one speech of anyone saying and if you elect me, I’m going to get rid of your state and local income tax deduction. I don’t remember one person doing that. Did you ever utter those words?

KB: Well, I will tell you, well, I will tell you, for whatever it’s worth, so I’m just one guy. So in all my town halls both here and across the country, I have asked that question. You know, do you want to make this big a change to lower the rates and give everybody help with their state and local, not just those who itemize and pay your own? And for the most part, the response was pretty thoughtful and positive, because people know, you know, versus very high tax rates, send them up to Washington, send your tax to Washington, and hope that a few people can get help back. You know, would they like everyone to have lower rates and be able to pay those, get help with those taxes? And so look, I’ve had those conversations, and they’ve been pretty positive. But at the end of the day, we’re going to listen to our members. This isn’t our tax code. It belongs to the American people. And so if the majority of our members want that reinstated, then clearly at the end of the day, that’s likely going to happen.

HH: Okay, because honestly, I think it is a nightmare in terms of equity. People have built their lives. They can’t leave a high tax state simply because you guys withdraw from them state and local income tax deduction. And this does hit the middle class squarely in its solar plexus among itemizers. Now half of the country doesn’t pay taxes to begin with, so we’re talking about…

KB: Go ahead.

HH: Go ahead.

KB: Yeah, I just, no, you go ahead. I don’t want to interrupt you.

HH: Well, I just think that on an equity basis, people can’t change their lives when they’ve built it on a tax code that is 30 years old, because it’s a massive tax hike for people who are still stuck in high tax states. I moved to Virginia. I’m okay with it. Not going to hurt me.

KB: Right.

HH: But it’s going to crush people in high tax states.

KB: So we’re going to have that discussion and listen, because at the end of the day, the current tax code has high rates, rural taxpayers subsidize city taxpayers. Middle class subsidize higher earners. Low tax states subsidize high tax states. So the question is do you want to stick with that? Or do you want a simpler lower rate tax code where everyone just handles their own? And so we’ll have that discussion. We’ll see where it goes.

HH: And I look forward to that. Now in terms of the, going back to the budget, that budget doesn’t bind the Congress, right? That’s just…

KB: No.

HH: …advisory. You actually can throw out the screwing of the Defense promise. You can actually keep the promise the President promised.

KB: Congress by law will make the decisions on the budget going forward in the House, and the Senate. I will tell you this. From a positive standpoint after eight years of a presidential budget that never ever balanced, you know, having one that actually shows us how challenging this is, I think it’s hugely helpful discussion.

HH: Kevin Brady, it’s always a pleasure, Mr. Chairman. I like to mix it up with you. Thank you for coming on and doing so.

KB: Thanks, Hugh, take care.

End of interview.

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