The Problem with Trump's Tax Cut Plan

George Callas, who is Paul Ryan's senior tax counsel, had this to say about Trump's plan to cut corporate taxes without any equivalent increases in other taxes:

It’s a very, very important point here. A plan of business tax cuts that has no offsets, to use some very esoteric language, is not a thing. It’s not a real thing. And people can come up with whatever plans they want. Not only can that not pass Congress, it cannot even begin to move through Congress day one. And there are political reasons for that. Number one, members wouldn’t vote for it. But there are also procedural, statutory procedural, legal reasons why that can’t happen. Doug and Mark were both talking about reconciliation. I want to pick up on that and flesh that out a little bit because it’s very, very important.

There is, I call it a magic unicorn running around, and I think one of the biggest threats to the timeline on tax reform is the continued survival of magic unicorns. People saying “Well why don’t we do this instead?” when this is actually something that cannot be done. As long as that exists , it’s hard to move forward by getting people to go through with what the Speaker refers to as the stages of grief of tax reform where you have to come to the realization that there are tough choices that have to be made and you cannot escape those tough choices.

What the reconciliation rules say—they don’t say that tax cuts have to sunset in ten years. They say that you cannot have a deficit increase beyond the 10-year window. . . . If you have legislation that has no offsets, no base broadening, so it’s just tax cuts, you either have to get Democrats to support it, which they will not, or you have to do it through reconciliation so that you can do it on a partisan basis with only Republican votes. Again, reconciliation says you cannot increase the deficit after 10 years. Here is a data point for folks. A corporate rate cut that is sunset after three years will increase the deficit in the second decade. We know this. Not 10 years. Three years. You could not do a straight up, unoffset, three-year corporate rate cut in reconciliation. The rules prohibit it. You might be able to do two years. A two year corporate rate cut—I’ll defer to the economists on the panel—would have virtually no economic effect. It would not alter business decisions. It would not cause anyone to build a factory. It would not stop any inversions or acquisitions of U.S. companies by foreign companies. It would not cause anyone to restructure their supply chain. It would just be dropping cash out of helicopters onto corporate headquarters.

Pretty strong language for a Congressional staffer to use about a plan put out by a president of his own party. And incidentally the rules he is talking about are not Senate rules that could be easily be overturned but have been written into Federal law.