Senator Tim Scott joined me this morning to discuss the House Senate Conference Committee on the tax bill, of which he is a member:
HH: Senator Scott, welcome and congratulations on the Kemp award. That was really a remarkable speech you gave.
TS: Well, thank you, Hugh. I’ll tell you what. The Jack Kemp is such a legendary leader that inspires and encourages us to think as one people, the American people, and to be mindful of the fact that we are all in this together, but more importantly, that conservatives, we define things very carefully. We define them by how much you can do for yourself, and not how much the government can do for you. It’s how we define compassion.
HH: Now let me begin, Senator, you’re on the Conference Committee. I want to cover four things with you on the tax reform bill. The first is because of a letter I received, a heartfelt letter from a mom whose a member of a staff at one of the little Ivies whose son is enrolled there, and turned down an ROTC scholarship because he got tuition abatement. And she pled with me to plead with you and others like you to please not tax them, because he would have taken the scholarship for the ROTC if they knew this was coming, and that they need a transition period. And I believe they have a very good argument. What do you think, Senator?
TS: I would agree with you. I would say that as we go through the process of reconciling those, the House bill and the Senate bill, the Senate bill is a little more generous when it comes to higher education than the House bill. We are in, we are posturing now to figure out how to make these two entities harmonize their products, and I think we’ll get there. I would be cautiously optimistic if I was that parent.
HH: Well, that is good, because I really do think a student who didn’t shop around because they were going to get the tuition advantage of going to mom and dad’s school where they work needs a chance to get out of that situation. The business interest deduction, I have heard from business owners who will be ruined if full deductibility of business interest is not returned. What do you say about that one?
TS: Well, that’s a far more difficult question, and technical in ways. We treat the deductibility of interest differently, and it’s, or impacts small businesses differently than it does large corporations. And we are still ironing out the differences between the two. I would say stay tuned for that. I don’t have, I would be insincere to give you a complete answer and/or encouragement in one direction or the other.
HH: All right. I just would call it to your attention. I just have heard from some people that borrowed a lot to expand that they’re going to be absolutely crushed if this goes through without deductibility. Then we come to Title IV colleges that are eligible for, but do not receive student aid. There are only a half dozen to a dozen of these in the United States. And yet, the interest on their endowment if they get sufficiently large will be taxed when they don’t take any money. Is that fair, Senator Scott?
TS: Well, that’s a great question, Hugh. The answer is it all depends, literally. There was an amendment on the floor to try to help those institutions who do not take any financial aid from the federal government. I thought there was a passionate display on the floor, and a clear, positive explanation on why we should help those folks with tax deductions who are saying they’re willing to take the entire cost on their own institutions, thereby saving taxpayers around this nation hundreds of millions of dollars, and frankly over time, billions of dollars, because they’re willing to do it themselves, restoring the deduction would make a lot of sense. How we treat the endowments going forward, based on student ratios, is going to be an important part of that conversation. We are not at the end there. That is a hill that will have to be climbed. I’m not sure that we get to the top.
HH: All right, the last one I want to talk to you about is a discussion that we’ve had on this show. Senator Inhofe introduced it as an amendment from the floor, neither voted up or down, but on the table, which is if you allow individuals in the United States with retirement assets to withdraw up to 25% of those assets and tax them one time at 10% plus their state taxes, if they use that money to pay down the mortgages which they can no longer in whole or in part deduct, or to buy real estate to diversify, you’ll raise billions of dollars, and you allow Americans to use their own money. It is limited in the impact it would have, because it’s limited to 25% of the amount that people have in protected IRA’s or Roth or things like that. Have you discussed that? Have you scored that, because you folks need revenue to build bridges between the House and Senate bills, Senator Scott?
TS: We do. We are looking at a number of areas to find that revenue. I will tell you that when you start delving into, the answer is no, we haven’t talked about that specific issue at this point. The chances are good we’re going to talk about every possible pay-for there is. So one of the, the topics that cut both ways where you encourage and incentivize savings more today by using retirement funds to lower the overall expense of living today only increases the expenses of tomorrow. So every time we allow for a reasonable distribution from your retirement accounts, your unfunded liabilities, based on the average of Americans’ spending and retirement accounts, would suggest that we are stealing from tomorrow to help today.
HH: Senator, I beg you to look about limiting those withdrawals to paying down mortgages or buying real estate, because in that narrow case, it’s the opposite. You increase retirement security, and you get your revenue. Senator Scott, great to talk to you, great speech the other night, go look at that retirement proposal. It will fix all your problems.