Texas Republicans and Chairman of the House Ways and Means Committee Kevin Brady was my guest this morning to talk about the first 100 days and tax reform and my Wall Street Journal op-ed on what not to do” (and The Fourth Way):
HH: My guest this hour, Congressman Kevin Brady of the great 8th District in Texas. He’s chairman of the House Ways and Means Committee, a friend of the show. You can follow him, @RepKevinBrady. He’s going to be one of the key guys in this new Congress. Mr. Chairman, welcome to the Hugh Hewitt show, Happy 2017.
KB: Hey, Happy 2017 to you, Hugh. It’s kind of exciting up here right now.
HH: Oh, it’s going to be very exciting. I’ve got a book coming out all about what you’re up to – tax simplification, called The Fourth Way. I hope you get it in time for the retreat. But let me get to the key questions.
HH: Let’s talk about repeal and replace first. As part of the repeal of Obamacare, you have a bite of this, can we get the medical tax device repealed, the tax penalty repealed, and the corporate rate reduction window, the repatriation window into the reconciliation bill so that some tax relief passes with 51 votes?
KB: Yeah. So yes on the medical device tax. That’ll be, we’re going to act immediate to repeal taxes for, within the ACA area. And we, but we are not going to do tax reform in this first. This is dedicated to repealing this entitlement, as much of it that the reconciliation budget process allows us to do, and begin to take steps, we’re not, Hugh, one big thing I think people are assuming Republicans will act like Democrats with a 2,000 page bill that no one knows what’s in it. We are doing just the opposite. Our replace is going to be step by step, thoughtful and understandable.
HH: But the 51 vote margin does concern me, and that corporate tax repatriation is so crucial to the economy. Isn’t there a way to make that part of the budget reconciliation package so that the revenue that would come in from the repatriation, Paul Ryan said on this show last week it might be as low as 5 ½%, could be part of the 51 vote margin in the Senate?
KB: Well, I think it ultimately in reconciliation this year, in which we do tax reform, that will be a key part of it, because our, in our pro-growth, what we call our bill for growth tax code, we make historic changes in the way we tax the lowest business rates in modern history. We allow full unlimited write-off immediate expensing of all that business investment – buildings, equipment, software, technology for the first time. We meet our competitors worldwide with the territorial system and the ability to bring those dollars home to the U.S. immediately, and then we border adjust to meet our competitors as well. And so those four key elements taken together actually vault us back into that lead pack. And so I actually that portion of tax reform fits best in the overall tax reform rather than in health care.
HH: But if it is in overall tax reform, it takes 60 votes, doesn’t it, Mr. Chairman?
KB: Well, it doesn’t, except if you use the budget process of reconciliation, which it requires 51.
HH: And so will you do it? Is that part…
KB: Yeah, that is part of our…
HH: Okay, that’s cool.
KB: No, that’s a key element of our bill for growth.
HH: That’s cool. So you can break, you can include it in the budget reconciliation, but not vote on it at the same time as health care repeal.
HH: I got it. Now I got it.
HH: Let’s move to your simplification. I love your better way forward on tax reform, the simple, fair postcard tax filing, which you can find with a couple of questions.
HH: You include on there that you are protecting the home mortgage interest deduction. You will not lower the cap lower than it already is, will you?
KB: Well, right now, we have it on there as it is today. And so look, we think home ownership is important, and we’re moving forward with that. We have had ideas brought to us about how do you make, how do you, because that only applies to those who itemize their way that home ownership could be encouraged for those who don’t itemize in a very simple postcard-type approach. So we’re looking at some sort of fresh ideas in that area. But we’re retaining the home mortgage deduction.
HH: That is terrific. However, not on your better way forward tax reform is the state and local income tax deduction. Removing that would be a disaster for the economy and politically for Republicans living in blue states. Why is that not on your tax reform card?
KB: Well, there’s a key principle here, which is today, Washington raises your federal taxes so that some can deduct their state and local income taxes, and as a result, every state subsidizes every other state. Rural communities subsidize urban communities, low tax states subsidize high tax states. So our proposal is why don’t we lower the taxes for everyone, and they pay, everyone pays their own taxes?
HH: And my response is it’s a political nightmare, and it is unfair to people who built their lives in blue states with high tax rates based upon the state and local income tax deduction. It’s unequitable and unfair, and moreover, it will lose the House majority. What’s your response, Mr. Chairman?
KB: Well, I would say this. I think Americans are tired of a tax code that subsidizes certain things and punishes others. In this case, the tax code subsidizes, encourages higher taxes at the state and local levels. That is a proposal we’re bringing forward, and we’ve, since we unveiled it in June, Hugh, in hundreds of town hall meetings, we’ve asked our communities and our local businesses is this a proposal, or do you want to add that back to the postcard? So we’re listening to people right now about what they want to see on the postcard. That’s one item that’s under discussion.
HH: All right, please put me down as wanting it on the postcard.
KB: Got it. Okay. I hear you, Hugh.
HH: And I will ask Kevin McCarthy later in the hour, because I think Kevin gets a primary challenger if you take that away. I think Republicans lose, I’m just being a political, I want the majority.
HH: I want the majority, Mr. Chairman, because we need it for a long, long time. Let me ask you about the Johnson option. Ron Johnson was on yesterday. He said why not leave one tax code over here, the one we’ve got, and then create a brand new tax code over here and allow the taxpayer to choose? What do you think of the Johnson option?
KB: I can’t imagine, well, one, I haven’t looked at it. I know my immediate reaction is we’re going for a dramatically simpler tax code.
KB: …where that keeps in place not only the complexity of what we have today, but a second layer of complexity, sort of like the AMT. But let me take a look at Senator Johnson’s approach, because clearly, the Senate has good ideas. In fact, we incorporated many of their tax ideas in the House blueprint as well, so let me take a look at that.
HH: And a last question about your postcard, I do love the postcard approach, is that the casualty loss is not on there, and every accountant I talk to tells me you have to have the casualty loss deduction. If someone is wiped out by Katrina or by a storm, they have to be able to be out from underneath the burden of taxes. How do you account for, where do you put something like, everyone will agree with that. How do you do it?
KB: Well, so we can, and we make this point over and over again, and I continue to. Look, this isn’t Washington’s tax code. This is America’s tax code. So we can put back on that postcard any item you want. We can put dozens back. We can put hundreds back on that postcard, as long as we recognize to do that, we have to raise those rates back up. And so we went for very low rates, we simplified the code from seven bracket to three. We lowered rates for everybody. We lowered it even further for savings investment, which we think is key, for families wanting to save and grow the community at the same time. And so we can add back state and local income taxes, we can add back any other provision. Just be aware to do that, you will have to send more money to Washington, and then hope some can get it back.
HH: And I love the fact that you are simplifying half of investment income, as opposed to all the different rates for all the different….
HH: That’s very smart. Can you summarize in our last three minutes, Mr. Chairman, what moves immediately in repeal and replace…
KB: There’s a lot of R’s going on right now, Hugh.
HH: And what moves later? Yeah.
KB: So the first thing is just to recognize you know, no entitlement that I know of in history once established has been repealed. And so this is a historical effort by Republicans in Congress and this new president. But equally important is look, this is health care. This is real people. So they deserve affordable health care that’s tailored to them, that’s delivered by the states, not by Washington. And so in the reconciliation, and then going forward, we’re going to, if I win my argument, we’re going to have a very simple step by step process that lays out the options for America to choose a better type of health care that’s tailored to them. Our approach is in effect a health backpack where you have the ability to that backpack from job to job, state to state.
HH: I get that, but I’m…
KB: …and ultimately, from business to business.
HH: I’m more focused, Mr. Chairman, on timing. When does the repeal bill get to President Trump’s desk, and will the medical device tax repeal be in that and the tax penalty repeal be in that?
KB: Well, the repeal bill is slated to be on the President’s desk in February. My understanding is that his hope to have it to him in that month. That’s the timetable we’re working under.
HH: And will the medical device tax repeal be in there?
KB: It will.
HH: Oh, my gosh, that is great news. How about the tax penalty repeal?
KB: On specific, which one?
HH: The one that penalizes you for not having Obamacare.
KB: Yes, the mandate penalties will be removed. We’re, now let me just say this. So the final design of all this has to go through the House and the Senate as well.
HH: You bet.
KB: But we’re going to act immediately on providing this tax relief.
HH: That is terrific stuff, but not the corporate rate reduction?
KB: No, sir.
HH: I think I hear you say that that’s in the fall or later in the spring?
KB: Yeah, it’s going to be, yeah, but it is action in 2017 on tax reform…
HH: Covered by reconciliation.
KB: It’s going to be done. Yes, sir.
HH: Covered by the 51 votes. You are going to get a lot done. If I can just keep persuading you on the state and local income taxes and the casualty loss…
KB: Yeah, make the argument. Look, we’re listening. That’s the important thing.
HH: Yes, you are.
KB: This is your tax code, not Washington’s, so having that kind of input is incredibly helpful.
HH: There is a chapter in The Fourth Way coming your way, Mr. Chairman, and I hope you read it. I hope you take it to heart.
KB: Yes, sir.
HH: Thank you so much. Come back early and often, Kevin Brady. And I appreciate it very, very much.
End of interview.