House Ways and Means Committee Chair Kevin Brady joined me this morning to discuss status of tax reform legislation:
HH: Joined now by Congressman Kevin Brady, the chairman of the powerful House Ways and Means Committee, a great Texan, and welcome, Chairman Brady, good to talk to you as always.
KB: Hey, good morning, Hugh, how are you doing?
HH: I’m great. It turns out we have a friend in Marty Sherman. I did not know that until last week.
KB: Oh, yeah, yeah, what a terrific guy.
HH: Good pals. Let’s get right to it, Mr. Chairman. The tax reform process is underway. You have to wait, obviously, on the Senate to figure out how much you’ve got to work with in terms of budget and savings. Is the border adjustment tax dead?
KB: Well, that hasn’t been decided, yet, and here’s the challenge. If border adjustment gets set aside, the problem we’re trying to solve still remains, which is even with low rates, you no longer taxing worldwide. U.S. companies are going to continue to move their jobs – manufacturing, research, offshore. More importantly, we’re going to miss the opportunity to bring that back to the U.S. So we are working with the White House and the Senate on finding the best solution to that problem. And I’m confident that at the end of the day, we’re going to find that right solution. It’s going to be policy that’s going to be right, and politically, it’s going to be right.
HH: But it won’t be, will it, what we’ve talked about or heard talked about, because I think retailers have basically revolted over this idea as being detrimental to American consumers.
KB: They have. They’re wrong in that regard, because for the first time, we’ll tax all products equally in America, so foreign products won’t have a tax rate over made in America products. But nonetheless, you’re right. The resistance from retailers has been very strong. But we’re going to stay focused on how do we lower the rates for job creators, how do we simplify the tax code for families so much so they can fit on a postcard? How do we leapfrog America from 31st in the world into the top three and keep us there? That remains our goal.
HH: So you’ve got to find a way to pay for tax cuts, and you’ve got a way, and by the way, are you going to make them permanent, or are they going to be sunsetted after ten years in your draft?
KB: Well, look, if we want businesses and families to make decisions whether it’s savings or investment for the long term, these need to be permanent. And every business walking in the door says man, do not give us temporary tax cuts. It will not help us make the decisions we need.
HH: So you are prepared to back up, and I always have supported this. I thought that ten year rule was stupid to begin with, and a self-imposed, non-Constitutional arbitrary, actually, guideline. You are prepared, and you have the Speaker’s support and the Leader’s support to do away with ten year windows?
KB: Well, no, that hasn’t been the discussion at all. We’re continuing to work under the law the way it is today, and the truth of the matter is you know, we’ve heard comments about a 15 or a 20 year, or a 25 year budget window. I actually think even ten years is always a lot of guessing on the budget and scorekeepers have points. So look, we’re going to permanence under the current rules with a lot of growth from this. And Hugh, we can accomplish what we want, especially with bold, permanent tax reform, under the current approach.
HH: So I just want to be clear. But whatever you come up with will not have a sunset provision in it? It will be a permanent tax cut? To change it, the Congress would have to act again in the future?
KB: That’s exactly what our goal is.
HH: Well, that’s very good, because that’s…
HH: That doesn’t allow for false cliffs, to use the, with quotations. I hate cliffs.
KB: I so agree. Absolutely. Look, that doesn’t give you the growth you want. You’re not going to have companies looking to make decisions to bring research and manufacturing back if this is a temporary type approach. And look, I think families deserve a permanently lower and simpler tax code.
HH: Now Chairman Brady, it appears as though the Senate is going to keep the 3.8% surcharge on the wealthiest Americans in their health care bill, if it passes, and probably the surcharge on payroll taxes, if it passes. Would you still support a bill that came back to you that included those taxes as they exist presently in Obamacare?
KB: Yeah, look, as you know, I’m no fan of keeping the Obamacare taxes, any of them. They’re all bad for the economy, and certainly bad for jobs. And that net investment income tax actually punishes people for investing in their local community and jobs. And getting rid of it will create 130,000 new U.S. jobs and raise paychecks. So look, I think they all need to go. I agree with Pat Toomey, who believes keeping that would be a mistake. But look, let’s let the Senate do their work. At the end of the day, we want them to deliver on their promise to repeal Obamacare, so let that process continue over there.
HH: But if it came back with the 3.8%, that would not be DOA, right?
HH: I mean, the House would have a very vigorous debate on it, but it would not be DOA.
KB: Well, look, we’ll continue to let the Senate do their job. What I know is that if it isn’t eliminated in the Senate now, why would it be eliminated later? You have the same people in the Senate voting on tax reform. So this doesn’t get easier going forward. And at the end of the day, what do we want to do? Punish people who invest in local jobs in local communities? It doesn’t make sense to me.
HH: Yeah, but we don’t have a majority of Kevin Brady’s and Hugh Hewitt’s. We just have to deal with the Senate that we have, right? That is the ultimate, you’re a practical guy. The Speaker’s a practical guy. The Leader’s a practical guy. And you’ve got Cathy McMorris Rodgers, a practical gal. They’re all practical, right?
KB: It is, but you know something I keep thinking about, so we’re trying to help people get affordable health care that they can use and need. We want to help people move from Medicaid into real jobs and really start to grow themselves and their prosperity. To me, it seems they get punished when you punish investment into the jobs they’re looking for.
HH: Well, I agree with that, but I’ll take ¾’s of a loaf.
KB: I understand.
HH: And so talk to me, I want to go back to border adjustment tax as my buddy, Drucker, is sending me instant messages saying wait a minute, the border adjustment tax is dead. The Senate won’t pass it, the Trump administration is against it, and Cohn and Mnuchin, is he right? Are all those people against it?
KB: Look, you know tax reform. You know it through the Reagan years as well. On any given day, anything is dead, and then it’s alive the next day. Rather than speculate, let’s focus on solving the problem, you know, and secondly, let’s refocus, too, on where small business is going to come out in tax reform. And we’re holding a hearing this week tomorrow, Chairman Peter Roskam on Small Business is where you’re going to hear in a major way how the current code is just killing them, and how the proposals we’re making lower, simpler, full and immediate expensing, really are going to drive growth for small business.
HH: Now Mr. Chairman, I’m a Virginian now, so this is not as close to my heart as it used to be, although it remains very important to my friends in California, the state and local income tax deduction. We just got great news. L.A.’s going to get the Olympics in 2024.
KB: Yeah, I heard that.
HH: You know, Congressmen get tickets. Would you put me at the top of your list for your opening and closing ceremony, get me four for those?
KB: Hey, step back one, because congressmen don’t get tickets to any of that stuff.
HH: Oh, you can…you can get, you can write a law to get tickets.
KB: Yeah, I don’t think, I don’t think that’s the case ever. I’ll go look, I have a TV set. That’s where I’ll be watching it.
HH: Well, if you do get tickets, can I get four of yours for the open and close?
KB: Let’s step back. But here, let’s reverse it. You know, you’re famous. You’ll end up getting tickets, you know. Just remember your friends.
HH: You know what’s so funny? I tricked Mike Gallagher, who’s a freshman, into saying yes on the air today.
HH: And he’s a freshman, and he didn’t know how to answer the tickets question, so I got him.
KB: I guess we’ll hang around with him.
HH: You’re a wily old legislator, Kevin Brady. So anyway, L.A. got great news. California got great news. We get them in ’24 or ’28. Everybody loves the Olympics. But they also have enormous taxes here, enormous taxes.
HH: And if the state and local income tax deduction is removed, California goes into a depression, which means the country goes into a recession. Have you held a hearing on the consequences of repealing that particular deduction?
KB: We have not, but remember this. We’re cutting tax rates significantly for all Americans, and so look at the top rate, going from effectively 44% with the Obamacare tax to somewhere closer to 33, 34% for everyone in America. That means everyone in America is going to get relief for paying their state and local sales tax, whether you’re in a high or low tax state. And so we sorta, here’s the question we’re asking America. Look, we can keep tax rates really high, and everyone just subsidize people in different states with state and local, or we can lower taxes for every American so they can pay their taxes at the state and local level, plus have more over. And so that’s the question we’re asking Americans. That’s why August, I think, is really important. The Senate, I know, is staying in. I think it’s important for members of Congress to be back in their districts listening on tax reform and building support.
HH: Would you hold a hearing, though, on this particular question, because politically, it’s a nightmare. We’ll lose Wisconsin and Pennsylvania back into the blue wall. But economically, I do think you put California, and probably New York, into a depression if you eliminate that. People will flee the states. And I just would like to have an on the record conversation with economists about what happens as a consequence of the elimination of that deduction.
KB: Well, remember, there’s the other half of the equation here. So you’re not just eliminating a deduction for what will be about 5% of taxpayers. You’re dramatically lowering those tax rates.
HH: I get it, but I think the drag on those state economies will be so great that the consequences to the country will be devastating.
KB: Look, I think the blueprint grows the U.S. economy by almost double its rate of growth. I think that’s, and increases average families $5,000 after tax wages. I think that’s really good for every state.
HH: I still, I still want you to have that hearing, Congressman.
KB: Yes, sir. By the way, we are going to follow up in July with another hearing on how do you simplify the tax code for families. So that may be part of that discussion.
HH: I hope so. Mr. Chairman, have a great August listening session in Texas, and remember when those tickets come through, the opening games, I think I have an implicit promise. I think I do. Thank you, Mr. Chairman.
End of interview.