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Senator Pat Toomey On The Triumph Of Tax Reform

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Senator Pat Toomey joined me this morning.  He’s been in the negine room of tax reform all year long (and for years before 2017):

Audio:

12-19hhs-toomey

Transcript:

HH: It’s the day I’ve been waiting for since 1986, comprehensive tax reform. One of the people in the engine room of this effort all year long, and for years before that, Senator Pat Toomey of Pennsylvania, and he joins me now. Good morning, Senator Toomey, great to have you.

PT: Good morning, Hugh, thanks for having me.

HH: You know, if you had told me in 1986 when I was a member of the Reagan administration we wouldn’t do this again for 31 years, I would’ve laughed.

PT: Yeah.

HH: It is kind of remarkable it’s taken this long.

PT: A little bit overdue, Hugh. But that makes it all the more delicious to get it done.

HH: Do you think it’ll happen today in the Senate?

PT: Yes, I do.

HH: Okay, before I go to what have you done for me lately…

PT: (laughing)

HH: Would you outline for the audience what you think is the key, you know, the key three or four things to know about this bill?

PT: Yeah, sure. On the individual side of our tax code, the key thing to know is the vast majority of Americans are getting a tax cut. There will be some modest simplification, and a net tax cut for the vast majority of the people that I represent, people all across America. That’s number one. Number two, we’re going to make our business tax code competitive so that American business and workers can compete and win, and we are going to encourage, I think, a tremendous wave of new investment, economic growth, demand for more workers, upward pressure on wages. You know, I think we’re going to, we’ll do that in several ways. One is lowering the rate that we charge business income. One is allowing immediate expensing of the purchase of the kind of equipment that make workers more productive. Another is by fixing the badly-flawed way that we treat the subsidiaries, foreign subsidiaries of multinationals. Having a rational international tax system is going to encourage multinationals to headquarter in the United States, and to make their next investments in the United States. So basically, a competitive business code, and a net tax cut for individual families, those are the big things, Hugh.

HH: It is going to have, I think, a remarkable impact on business expansion and capital relocation. And I believe the expatriation, or the repatriation of dollars is going to be significant. What do you expect to do with that cash bump that comes in from, I think it’s 8% of illiquid assets, and 15 1/2 % on liquid assets. And Apple, for example, has $250 billion dollars stranded abroad.

PT: Well, as you know, we’re running a deficit now. And what we’re going to do as a result of this bill is we’re going to have smaller deficits. And our Democratic friends, their head explodes when I say that, but the fact is a very modest bump in economic growth is going to generate more than enough new federal tax revenue by virtue of being able to tax a bigger economy than the revenue that we forego when you look at this on a purely static basis. So the answer is we’re going to have smaller deficits over time.

HH: So let me go to the what have you done for me lately. The Republicans get one more 51 vote bill. They pass a budget in 2018. That means you get one set of reconciliation instructions. I am hoping you use that to remove the sequester from the Department of Defense, but not the caps from domestic spending. What do you expect that 51 vote measure to be about, Senator Toomey?

PT: Well, I think health care is, so first, on your issue, look, I believe that we need to devote more resources to our Defense budget, and we do not need a commensurate increase in non-Defense domestic discretionary spending. I don’t think we can use the reconciliation mechanism as the process for achieving that, because just the whole appropriation process, that’s always been a 60 vote process. And unless we’re willing to revisit those rules, I don’t think we can solve all that by using the budget. However, there are things we can do. We will inevitably need to look back and make further tweaks to tax reform. This is a monumental accomplishment we’re going to have today, but there will still be work to be done. And there’s a great deal of work to be done on health care. You know, we’re taking a huge step in the right direction by repealing the individual mandate. But there are still remnants of Obamacare that need to go. And we need to move in the direction of a consumer-based health care system. So there will be plenty to do with those reconciliation instructions from our next budget resolution.

HH: But if I can pause for a second, it is my understanding, I’ve spent some time talking to some other senators, that the overall nature of the budget agreement that brought about sequester on both domestic and Defense is in fact subject to a budget resolution. You could get rid of it there. Are you saying that that’s simply not most important in your line? Or are you saying no, it just won’t work in the Byrd rules, because I’ve been told the opposite on the latter.

PT: Well, I’ve never seen us use the budget reconciliation mechanism to control the entire appropriation process without agreeing to a 60 vote threshold. So you know, we’ll do a little research on this arcane budget rule, but the actual spending legislation has always been a 60 vote exercise, and that’s where the Democrats have the leverage to insist on more domestic spending. That’s where they always have in the past. And had it been sufficient to simply use the budget resolution to prevent that, then I think we would have done that by now. But it is absolutely worth making sure we take every possible run at it.

HH: You know, I really appreciate when I talk with you, Senator. When we talked last time about the college tuition become taxable income, you went back and you fixed that. And I appreciate you being willing to listen to stuff like this, because getting rid of that sequester on DOD, they cannot do longtime purchases. They can’t build a 350 ship fleet operating on continuing resolutions and OCO add-ons.

PT: Yeah.

HH: It just doesn’t work that way.

PT: Yeah, no, there’s no question, and I think there’s increasing evidence that look, we’re endangering our own men and women by not providing them with the tools that they need, the training that they need. We’ve been underfunding too much of our defense for too long.

HH: Now two quick questions. I just had on Senators Lankford and King together, and they’re good friends, and they both expressed optimism that a comprehensive immigration reform bill, one that included a DACA fix, border security and changes to chain migration could arrive with bipartisan support in January or February. Do you agree with that, Senator?

PT: You know, it should be possible. There’s a lot of reasons why people on both sides of the aisle ought to be able to come together on this. We will see whether or colleagues are in a mood to allow President Trump to have a big win, because that’s what that would be. Let’s be honest. That would be a huge win.

HH: But it would be a win for the DACA kids, too. I mean, that’s the reality.

PT: Well, exactly right. Exactly right. And so, let’s see if we can make progress. I’d be very supportive of moving in that direction. And I think the elements of a deal are known. So I think it’s entirely possible.

HH: I also want to turn to nominations. The fact that we don’t have an ambassador in Germany, Rick Grenell, is just mind-boggling to me given the crises that they’re undergoing. And there are lots of other ambassadorial vacancies. Do you anticipate that there will be a list of ambassadors that get through before you folks adjourn and go home?

PT: I would think so. That has happened this year in the past. It happened in the summer before the summer break. We had quite a substantial list. But I’ve got to tell you, we have a very, very flawed process, and I know this is no news to you, Hugh. But we’ve got a flawed process where we tolerate way too much obstruction, and just chewing up the clock, just wasting time that prevents us from functioning on the Senate floor, allowing very, very extended periods of debate over nominees who are not controversial. And allowing the Democrats to continue to do this diminishes our ability to get our agenda through. So yeah, I think we probably get a raft cleared here at the end of this year, but we shouldn’t have to go through this. We should expedite this process.

HH: There is also quite a lot of buzz that a cabinet shakeup is underway, that we’ll see Director Pompeo move to State, your colleague, Tom Cotton, go to CIA, and perhaps General Sessions stepping down for someone like Scott Pruitt. Have you picked up this? And do you expect changes to come between now and the reconvening of the Senate so that you’ll have early confirmation work to be done in 2018?

PT: I will tell you I have no information to pass on in this area, Hugh. I have been deeply immersed in the tax bill and working with the administration folks who are focused on that. I’ve heard the rumors swirling around, but I really have no knowledge about how credible they are.

HH: All right, then let me go to back to tax and finish up where we began. There is a story in the New York Times today that we ought to feel sorry for the demoralized IRS facing monumental tasks with new bill. I’ve never actually, I was a fed for eight years, and no one ever felt bad, six years, no one ever felt bad for me because I was working hard. That was actually not something that ever came up. Are you worried that the IRS can’t get the new changes into law and effective, for example, in withholding tables, etc.?

PT: We have not heard that concern raised by the IRS or the Treasury. If that is a legitimate concern, we ought to discover that. We ought to learn that. We ought to fix that. I expect that withholdings will change by February, and business will have over a year before their tax filings are due for 2018. So I’m not losing a lot of sleep over that at this point. If the problem arises, we’ll deal with it.

HH: All right, now that leads me to where I want to conclude. A lot of people say the bill is polling poorly. I point out to them that that’s because no one has seen it, yet. But when the withholding tables change, it’s like the Obamacare premiums. They actually arrive on a kitchen table, and people had to pay them. That’s why Obamacare was so unsettling, and doctors left, and plans changed. This actually delivers take home money in the paychecks beginning February. I think the numbers on the bill change in a hurry. What say you, Pat Toomey?

PT: You’re totally right. That’s exactly what I’ve been arguing. Look, my Democratic colleagues go down to the Senate floor and every media opportunity they have, and describe this as a tax hike on the middle class, which is an outrageous lie. But you tell it often enough, and some of it will stick. The truth comes out when people see that their take home pay has gone up. When they see it in their own check, that lie will not be able to be sustained. And people will be quite pleased when they discover that not only have they gotten a raise, but it seems like the economy is humming along. That combination, that’s going to change the numbers on this.

HH: Last question. Are you worried that the labor market already being tight is going to bring about inflationary pressure for labor?

PT: So not inflation in the classic sense of a loss of value of the dollar. I think it will put upward pressure on wages, and I think that’s a good thing, because the labor share of total GDP has declined in relative terms, and most workers haven’t had a substantial real wage increased in some time. And so I think the expansion occurring at this point in the cycle where unemployment is relatively low is going to have a very healthy and very constructive effect of elevating wages. So I think that’s going to be a good outcome.

HH: Well, congratulations to you, to your chairman, Orrin Hatch, who gets a lot of kudos here, Leader McConnell, Whip Cornyn, Conference Chairman Thune. You had a lot of heroes on this, but especially Senator Hatch. When you see him, tell him I said thank you, and congratulations to you, Senator Toomey.

PT: I will do so. I will do so. Thanks, Hugh.

HH: Merry Christmas.

PT: You, too.

End of interview.

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