If we keep punishing wealth we're never going to get the real capital formation we need to spur serious growth.

Senate rules make it almost impossible to pass a pro-growth tax cut . . . and guess who refuses to change the rules

The word “arcane” is used so often in describing the workings of the U.S. Senate, it’s almost become cliche to the point where people dismiss it. There’s that word again. What does it mean. We don’t know. Must just be some esoteric nonsense. That’s too bad, because the arcane nature of the Senate is one of the biggest impediments to the policy changes needed to bring about real economic growth, and most of the public doesn’t know that.

If you’re the average voter, you probably think that electing a Republican majority in the Senate means the Senate can pass Republican-supported legislation. You might understand that you sometimes need the vice president to break a tie. And you might understand that there’s this thing called the filibuster that makes it hard sometimes to get things passed. But the average citizen can be forgiven for thinking that issues like this should not prevent a Republican-controlled Senate from getting its work done. That is a reasonable thing to expect. But it’s not how things are. The Senate’s rules are truly arcane, and designed that way intentionally. On few matters is this more true than on the question of taxes, where the rules make it virtually impossible to pass a real pro-growth tax cut - despite the claims of most Republican senators that they would want to pass such a measure. The Wall Street Journal offers some crucial details: The first test will come soon as the House and Senate write a budget resolution that is essential to be able to pass tax reform with 51 Senate votes. The problem is that under the arcane rules of “reconciliation,” legislation cannot raise the deficit beyond the budget “window” that is usually 10 years. Tax writers thus feel obliged to “pay for” any tax cut based on estimates from the Joint Committee on Taxation and Congressional Budget Office, though such estimates are notoriously unreliable predictors of growth and tax receipts. The GOP might trap itself inside this budget box. House Speaker Paul Ryan has already conceded publicly that cutting the corporate tax rate to 15% from 35% is unrealistic and the rate might have to be in “the mid-to-low 20s.” House Republicans have already abandoned a cut in the top individual tax rate, and death-tax repeal could also be on the chopping block.

The risk is that Congress ends up passing a tax cut that is a damp squib for economic growth—amid an expansion that is already long by historical standards and needs a capital investment boost. Congress can increase its pro-growth running room by eliminating tax loopholes, and we hope they do. But some of the biggest money savers are politically difficult—even among Republicans. Repealing the state and local tax deduction gins up more than $1 trillion over 10 years, but will the GOP delegations in high-tax California and New York buy that? Deductions for charitable giving and mortgage interest have been declared untouchable. The Joint Tax Committee is also supposed to offer a dynamic “score,” or an estimate that considers how a reform would influence behavior and growth. But Joint Tax makes highly debatable assumptions: One is that deficits increase borrowing costs for Treasury and “crowd out” private investment, as the Tax Foundation has detailed. That argument should have been repudiated in the 1980s when deficits rose but interest rates fell and growth soared. But Joint Tax persists, and the effect is to mute its growth estimates and thus any revenue gains from reform. To simplify the point, static-scoring Beltway types decide whether a bill will increase the deficit, and they don’t give any consideration to the possibility that tax cuts might spur growth that might increase revenue. And if the static-scorers go thumbs-down on the tax cut’s budget implications, the rules don’t allow the bill to pass with a simple majority. Since Democrats are never going to support a real pro-growth tax cut because it will “benefit the rich” or whatever, it’s essentially impossible to pass a pro-growth tax cut.

You will see proposals that sound serious, but once they go through committee and they receive their CBO scores, the tax cuts will be watered down so as to qualify for reconcliation. If anything passes, it will be a tweak to the existing system, not the complete overhaul we need. President Trump already seems to be ceding the argument by emphasizing that his tax cut plans are designed to benefit the middle class and not the rich. But a real pro-growth tax cut has to benefit the rich, because the rich are the ones who control the capital we need to be redirecting into more productive sectors of the economy. I’m all for cutting middle class taxes too, but if we keep punishing wealth we’re never going to get the real capital formation we need to spur serious growth. About that: Current CBO estimates only expect growth of 1.9 percent in coming years. That’s pretty much the same anemic performance we got during the Obama years, and it’s causing wages to stagnate while nearly 38 percent of the able-bodied workforce sits home. It’s also costing the Treasury around $200 billion a year, which makes a big difference when you’re run up the nation’s credit card to a cool balance of $20 trillion. We must boost economic growth. The minimum should be 3.0 percent. The norm should be 4.0 percent. An achievable goal to shoot for should be 5.0 percent, and we should see it achieved regularly.





But we can’t pass the kinds of tax policies that will give us this performance under current Senate rules, and that leads us to the really infuriating thing about all this: There is nothing mandatory about these rules. They weren’t created by the Constitution. The Senate itself established these rules, and the Senate could change them, by a simple majority vote. There are currently 52 Republicans in the Senate and 51 of them (or 50 plus Mike Pence) could eliminate these rules tomorrow. That would permit the Senate to pass all the pro-growth tax cuts it wants on simple majority votes. But Mitch McConnell will not hear of such a thing. The Republican Senate Majority Leader is devoted to these arcane rules, and considers them crucial to the nature of the Senate. He insists there is not a consensus among Senate Republicans to change the rules, but the fact of the matter is no one is leading any such effort. Senate leadership thinks following the budget rules is more important than achieving economic growth, and if no pro-growth tax cuts can ever be passed by this Republican-controlled Senate, Mitch McConnell will merely throw up his hands and say, the rules, the rules, there was nothing we could do! Yet there was, and there is. They could change the rules today if they wanted to, and if the nation’s economic well-being was really important to them, they would. But they don’t, so they won’t. When you went out and voted for a Republican-controlled Senate, you were conned. You thought they would do their jobs and pass legislation that reflects the Republican philosophy. They won’t. By keeping rules in place that they could change, they will tie their own hands and then try to make you think they had no choice. You always have a choice. They’re making theirs. Someone needs to call them to account for it.



Dan Calabrese -- Bio and Archives Dan Calabrese’s column is distributed by HermanCain.com, which can be found at HermanCain Follow all of Dan’s work, including his series of Christian spiritual warfare novels, by liking his page on Facebook.

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