House Ways and Means Committee Chairman Kevin Brady joined me this morning to discuss the tax bill:
HH: I’m joined now by the chairman of the House Ways and Means Committee. He is Congressman Kevin Brady of Texas. Last time he was here, his beloved Congressional district was under water. How are you, Kevin, and how is your district doing?
KB: Hey, good morning, Hugh. Thanks for asking. Look, our region is still struggling in a major way, as is Florida, and as we all know, Puerto Rico as well. And so look, we’ve got tens of thousands of people who just don’t have a home, and not sure where they’re going to go. We’ve got a lot of businesses that aren’t reopening, and so that’s why I think you know, the two actions Congress already swiftly took provide help. The President just sent up another recovery package this week for us to consider, so, which will help people in Irma, hurt by Irma, Maria and Harvey. So it’s really important for us to help those communities rebuild. They can do a lot, but I think we can help them as well.
HH: Now in terms of your district, Congressman, just before we get to the tax bill, which everyone wants to know about, it was truly underwater. So what is needed down there? What’s the most important thing for the 8th?
KB: Yeah, so look, imagine a year’s worth of rain occurring in three days, and just the devastation that, an unprecedented that brings about, that’s what we faced. And so again, we’ve got to get homes rebuilt. We’ve got to get businesses back up and running. And we need to think about how to prevent this in the future, whether it’s on the coast with the hurricanes, or the inland flooding that caused so much damage in our region. And so we’re spending an awful lot of money making repairs repeatedly in these hurricane zones, so it makes sense for the state and the community to partner together with us at the federal level, each of us putting in a share in trying to solve the problem for the long term.
HH: All right, now let’s turn to the tax bill. I read from the New York Times this morning, Chairman Brady. Republican leaders are backing away from a proposal to fully repeal an expensive tax break used by more than 40 million tax filers to deduct state and local taxes amid pushback from fellow lawmakers whose residents rely on the popular provision. The state and local tax deduction is estimated to cost $1.3 trillion over the next decade, and its repeal is central to paying for a sweeping tax rewrite unveiled last week. True or false?
KB: I don’t think that’s accurate. Here’s what I can confirm, that we are listening to lawmakers, especially those in high tax states, where those governors and those mayors are really putting the screws to hard-working taxpayers. We want to make sure we lower taxes for every American, regardless of where they live. So we’ve had a series of, I think, eight tax reform dinners where we’re listening to members from all states. We had one the other night. We were listening, of course, to lawmakers from New York, New Jersey and other states as well. And so look, we’re going to continue to have those discussions, because boy, they are just, those states, those taxpayers, are really getting hammered. And even worse, the tax code raises taxes on middle class families in those states and across the country so we can subsidize a few. So we’re having good discussions going forward.
HH: Now Chairman, I spoke with some leadership off the record when, before the bill was unveiled, and brought up my concern about the state and local tax deduction, even though I now live in Virginia, not California, my concern that it would cripple revenue and thus bond reliability, and start economic havoc. The response was in fact, by adding a property tax deduction and doubling the standard deduction, most of the taxpayers in those states would be spared an impact. Do you think, is that persuasive to members from the blue states?
KB: Well, look, property taxes are painful. I don’t care what state you’re in, and they continue to go up. And so that’s an area we’re listening to lawmakers about. What we know from history is when we saw President Kennedy’s proposed cuts become reality, and President Reagan’s, guess what took off? State and local revenues, because in fact, those took off sooner than the federal revenues, because when people get back to work, and their paychecks are higher, the economic growth occurs first in our communities, and they enjoy higher revenues, which I think is an issue that has kind of got lost in this debate.
HH: Now Chairman…
KB: Growth matter. Growth helps.
HH: Absolutely, and 5% growth cures a lot of ills if you can get to 5% for just a year. Now Chairman Brady, what about the transition? And I’ve heard it talked about by tax reformers for years. You can leave the old code in place, put the new code in, and let people choose for five years before you go to the new code. That allows people to alleviate their reliance damages whenever you make major changes. Is there a transition period imagined?
KB: Well, there will be transitions for certain provisions, because look, we’re leaving an old clunker of a tax car behind, and moving to a much newer, faster model that almost every economist believes moves the economy much faster than where we’re at today. In some provisions, you will want a transition from the old clunker to the new car, but you don’t want to transition all the positive growth factors. Look, you want to get the rates down now for our businesses to be able to compete. You want them to unlock all that new business investment and equipment and technology and productivity that have been on the sidelines. And so a key part of our tax reform plan is to really accelerate all the growth provisions right up front.
HH: And so it has always seemed to me absurd that Democrats legislate with abandon and without regard to the debt, but that Republicans feel, and I think Bob Corker of Tennessee said if it adds a dollar to the debt, I’m not voting for it. It just, it’s astonishing to me that we do not avail ourselves of growth opportunities because of that. Do you believe Senator Corker can be persuaded that we don’t have to be debt neutral this time?
KB: Here’s what I know. Tax reform done right will grow the economy in a major way and help us back to a balanced budget. And so I think tax reform can help us move to a balance budget, and we’re designing it to do that. But that alone, economic growth, powerful as it is, won’t do it. You have to exclude special interest provisions, loopholes and deductions that have made this code unrecognizable to President Reagan when he succeeded. So that’s the other part of this equation as well. At the end of the day, look, given what happened in the Senate in health care reform, I think it’s important for every Republican Senator to make the commitment now that they’re going to act in a positive way on tax reform.
HH: Now I spoke with Leader McCarthy on my MSNBC show Saturday. I’m going to speak to the Speaker this Saturday. I keep coming back to two things, practical issues. Number one, I just don’t see the schedule. How do you get this out of the House in October, the Senate get it done in November, and the conference done in December so the President can sign it by New Year’s Eve? Is that realistic, Kevin Brady?
KB: You know, I think that getting this to the President’s desk by the end of the year is achievable. Is it ambitious? Absolutely. President Reagan’s reform took two and a half years. We’re trying to do it in one year. But I think the economy and the public is starved, Hugh, for this, for tax reform. I saw a poll last week, you know, eight out of ten Americans want Congress to act now. They think, and they believe it will help them, and they want their lawmaker to work with President Trump to get it done. So I’m focused on achieving this, this year.
HH: But there is some anti-Trump animus among some Republicans that overwhelms their judgment. They are so anti-Trump that they allow things that they would otherwise support to go down, because they like to injure the President. Have you overcome that in the caucus? Do you think the Senate can overcome that?
KB: Well, look, I don’t see that in the House. You know, there may be, there may be those elements among Senate Republicans, which contributed to the health care failure, but I will tell you in the House, that’s not the case. We are unifying behind big, bold, transformational tax reform. And look, for Americans, we’ve been waiting 31 years for Congress to act. Last week, last week was a crucial week to have the President, the House, and the Senate together on this thing.
HH: Now let me talk to you about two items in specific that my friend, Hank Adler, retired managing partner of Deloitte in Orange County, California, keeps calling to my attention. The first is the casualty loss provisions. Now you, having come out of the 8th District, where you’ve had so many people lose everything, know that the casualty loss has to remain in the tax code, right? It’s not there in the draft framework. But it has to be there, or people who get wiped out have no tax relief.
KB: Well, no decision has been made. I don’t want to get ahead of our committee on each of those provisions. But clearly, for disasters like this, you’re going to have that provision front and center for families. In fact, we did that just last week. And no decision’s been made if that will be done on a, continue on a permanent basis or not.
HH: All right. Then, Hank’s concern is that changes, even though you’re leaving the charitable deduction in place, if you increase the standard deduction, that people will no longer resort to the charitable deduction as they have in the past. Now I dispute that. I believe people give for different reasons.
KB: I do, too. I do, too.
HH: Okay, so give me your response to that.
KB: Well, first, look at history. You know, there is one factor that drives charitable giving. It’s the economy. When people have good-paying jobs and paychecks, they give. And when they don’t, it’s harder for them. So you know, increasing growth by more than 50% is good. And also, we keep the charitable deduction on the postcard. In fact, we’re looking at redesigning it a bit so we can encourage more Americans to give to church, their cause, the charity they believe in. And so look, it’s, we are a giving nation. There is no one that’s even close to number two worldwide to us, so we want to unlock more charitable giving in tax reform.
HH: The penultimate question, the fourth rate. I would not mind if the fourth rate went above 39.6. What is the upper limit for the thus far unsettled fourth rate, in your mind, Chairman Brady?
KB: Yeah, so no decision’s been made on if there will be another rate, or at what level it is. Here’s why. We want to drive a major middle class tax cut. And we know what’s a little different from the Reagan years is rates along are no longer just those in play. You’ve got repealing the alternative minimum tax, lowering the pass-through rates, eliminating the death tax, a number of key elements that now affect taxpayers at different levels. So we want to make sure we’ve got all the relevant facts and data to deliver tax relief at every level. That’s the only reason that in the framework, a fourth rate may be contemplated. We just want to make sure in a very complicated code, as we make it simpler and fairer, we’re letting people keep more of what they earn.
HH: All right, my last question is about the pass-through. I have been a pass-through corporation since 1989. I think pretty much every member of the media is. And I’m looking at a tax cut, if I read this correctly, enormous tax cut. How do you, and Pat Toomey said no, you’re not. Wait until the fine print comes out. What is the rule on the pass-through?
KB: Yeah, so it hasn’t been finalize, yet, but here’s the important thing. We are not going to leave three-fourths of America’s job creators behind by only doing a tax cut for corporations. We think job creators, whether they’re a mom and pop, a single entrepreneur, or you, is crucial to growth. And so we want to lower the rates for every business, regardless of size, regardless of structure. So we have to do that, thinking through how you earn money as the pass-through. But I’m confident working with Secretary Mnuchin at Treasury, and working with Senate Republicans, we’ll have good, solid, simple rules in place to do this.
HH: But that 25% is simply not going to apply across the board to every sub-chapter S, is it?
KB: Well, no decision have been made there, but we want to drive rates down for our pass-through’s just as we are for corporations. Look, we want an equal tax rate for both. This is incredibly pro-growth for businesses, especially our smaller businesses. And so we’re determined, look, let’s get these jobs going.
HH: Chairman Brady, always good to talk to you. Thank you for spending time. Good luck in the rebuild in the 8th as well, and come back early and often during this debate.
End of interview.