Judd Gregg: The complex path to tax simplification

Judd Gregg: The complex path to tax simplification
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There is nothing simple about simplifying our tax laws, especially when the goal is to make them fairer, more rational and more oriented toward economic growth.

This fall, as the Congress and the White House try to move tax reform, the intricacies of the path they must navigate could come from a Lewis Carroll story.

The mad hatter dinner party will look coherent, however, when set against the budget, appropriation and tax rules and procedures that will be confronted.

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Let’s begin with the budget quandary that must be unraveled before tax reform can formally move through the system.

 

First, there is the small matter of the debt ceiling. 

Everyone knows that the debt ceiling must be raised; that the government cannot be allowed to default on the debt; that the money has been spent; and that the money to pay for the spending must be borrowed.  

This is all obvious and undeniable. But, politics does not handle the obvious and the undeniable well. 

President Trump said a week or so ago, more or less out of the clear blue, that if he does not get approximately $2 billion in spending for the Mexican border wall, he will countenance not funding our $4 trillion government.

Next the president said, also out of the clear blue, that he would support a three-month extension of the debt limit and a three-month continuing resolution.

This put him in agreement with the Democratic leadership of the Congress and in sharp contrast to the Republican leadership. Speaker Paul RyanPaul Davis RyanMcConnell names Senate GOP tax conferees House Republican: 'I worry about both sides' of the aisle on DACA Overnight Health Care: 3.6M signed up for ObamaCare in first month | Ryan pledges 'entitlement reform' next year | Dems push for more money to fight opioids MORE (R-Wis.) had, earlier the same day, said such a short extension would be irresponsible. 

One of the reasons Ryan supported a longer timeframe was that the three-month measures the president and the Democratic leadership have settled upon push the issue of a government shutdown to the end of the year. 

This is the same period when the Republican leadership of the Congress and the president’s Treasury secretary, Steven MnuchinSteven Terner MnuchinMark Mellman: History’s judgment Trump's motorcade greeted with chants of 'lock him up' in NYC Treasury watchdog probes lack of tax plan analysis from Mnuchin MORE, had hoped to debate and pass tax reform.

Ryan clearly wanted to get these distracting shutdown issues off the table so that the Congress could focus specifically on tax reform. 

But the president has pulled the rug out from underneath the Speaker. 

It is difficult to ascertain why he would do such a thing. 

One explanation is that Trump really does want to use the debt ceiling and the continuing resolution as leverage to obtain funding for the Mexican border wall.  

By limiting the timeframe, these two issues are pushed off until December. They will no longer be tied up in the need to fund relief in the wake of Hurricanes Harvey and Irma. 

The Republican leadership could have used these relief bills as the vehicle on which to attach longer extensions.

But by opting for three months, the president can return to his shutdown threat at the end of the year, having got the Harvey and Irma funding in the meantime.

Of course, shutting the government down has never worked well for Republicans. It ends up costing a lot of money and making Republicans look simultaneously mean and unsophisticated.

Now, after the president’s agreement with the Democratic congressional leadership, the Republican congressional leadership must do the heavy lifting of tax reform at the same time as grappling with the debt ceiling and a need for a continuing resolution.  

It is a strange Christmas present that the president has given Ryan — one that makes the procedural issues surrounding the passage of a major tax reform bill much more problematic.

All of this is also complicated further by something called the Sequester.

Under the present law, in 2018 the sequester kicks back in at a number that is approximately $100 billion below the present spending limits, known as caps.

This means that, if we go into next year with a continuing resolution, discretionary spending must drop by $100 billion.  

Since the president and most of the Republicans in Congress want to raise defense spending in the face of the numerous threats we now confront, keeping within the sequester’s limits would require major cutbacks in the rest of domestic, discretionary spending. 

This is not likely.  

Thus, it will be time to march out the gimmicks or adjust the caps — or more likely both.   

These spending and debt issues also create a rather convoluted course of action that must be negotiated before the Congress can get to the 2018 budget bill.

A 2018 budget bill is necessary to kick off tax reform. The reconciliation instructions in such a budget will allow the Republicans to pass a tax bill in the Senate with 51 votes.    Thus, the budget creates the primary highway to possible passage of tax reform.

It will be difficult to pass such a budget if the Congress has not figured out how to deal with the caps and sequester. 

Everything is related — and a bit chaotic.

As if all that were not enough, there is also the small matter of the Senate budget rules know as “pay go.” 

This essentially requires that the deficit not be increased over the ten-year budgeted period. Thus, if there are to be tax reconciliation instructions in the 2018 budget, the taxes cut cannot increase the deficit. 

This will require either some serious spending offsets, a new type of scoring known as “dynamic scoring,” or a change in the “pay go” rules.

Most likely, it will in fact require all of three.

This will not be a painless political lift.

Assuming the Congress is able to work through this winding thicket of procedural and substantive issues, it will arrive at the door to tax reform.

Of course, opening this door should be easy. Everybody loves tax reform — except, that is, for folks who have spent years working their special deductions and exemptions into the tax code. This includes almost everyone who pays, or might have to pay, taxes.

Putting all this together, you might be tempted to think that the odds are heavily against tax reform.  

That would not be quite right, however. There is one overriding factor that points in the opposite direction.

It is called political survival.

The passage of a true, significant tax reform bill is the last, best hope for this Republican Congress and this unusual President to claim they should continue to be entrusted with our nation’s wellbeing.   

Political survival trumps (no pun intended) all other hurdles, procedural and substantive.

A way will be found to get to tax reform. You can bet your re-election on it — if you are a Republican.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.

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