Next Up For The GOP Tax Bills: Making Them Match
STEVE INSKEEP, HOST:
What will a Republican tax bill really do to this country? Well, it depends on just what the bill says. The House and Senate have passed different versions, which they now try to merge. But it's never too early to predict good things. Senate Majority Leader Mitch McConnell was on CBS.
(SOUNDBITE OF TV SHOW, "FACE THE NATION")
MITCH MCCONNELL: I think this coupled with the regulatory relief the administration has been providing are the reasons the economy is beginning to pick up. Consumer confidence is up. I don't want to read too much into quarterly growth rates, but we've had two quarterly growth rates in a row of 3 percent growth. I think this is going to get the country growing again.
INSKEEP: Couple of economists have their own opinions - economists with opinions. Jared Bernstein was Vice President Biden's chief economist. Good morning, sir.
JARED BERNSTEIN: Good morning.
INSKEEP: And once again, conservative economist Peter Morici is with us. He writes for The Washington Times and Dow Jones. Good morning to you.
PETER MORICI: Good morning.
INSKEEP: OK, so it's tax cut. Why are Democrats calling it a tax scam, Jared?
BERNSTEIN: Well, first of all, what Mitch McConnell just said was completely implausible. Somehow the economy was growing over the last couple of quarters because of a tax plan that was just worked through in the dead of night that nobody really knows what's in there. The problem with this plan is that it is structured in such a way as to transfer really trillions of dollars from low-, moderate- and middle-income people to those at the top of the income scale - to corporations, to multinationals, to the heirs of wealthy estates. And it puts it on the back of the budget deficit. So it's a deficit-financed regressive tax plan that's going to, down the road, leverage big spending cuts.
INSKEEP: Peter, even if you like this tax plan, isn't that essentially true?
MORICI: No, it's not.
INSKEEP: Wealthy people get tax cuts. The estate tax...
MORICI: It's not where I want to focus.
INSKEEP: ...Gets smaller or goes away. It's not where you want to focus, but it's true.
MORICI: Well - no, it's not.
INSKEEP: OK. Go on. Go on.
MORICI: They're basically cleaning out a lot of deductions and credits and so forth, consolidating and lowering the rates. They're lowering the corporate tax rate to something that is more competitive with our Japanese and European competitors. I mean, 35 percent is too high given all the cuts they've had over there. That will probably induce some more growth. I mean, econometric studies done in academic - published in academic journals do indicate that if you lower the corporate tax rate, you do get some positive effect on investment. So the economy will grow more rapidly.
As for all this redistribution, Democrats are going to have a heck of a time explaining how it is that people have more money in their paycheck come March and April if money was being taken away from them.
INSKEEP: Except that some people are going to have less. Right? I mean, some people will have...
MORICI: Actually, very few. It's going to be about 9 percent if the House bill were to go through. No, that's not true. Now, the tax cuts do go away in about 10 years, and so that creates a problem. If they don't generate all this growth, then they're in the soup 'cause they can't continue the cuts.
INSKEEP: Jared, you actually nodded when Peter was saying something. I was stunned. He was talking about the business tax cut. Is it at least true that there can be some economic growth that is spurred by this tax cut, even if you don't like the way it's structured?
BERNSTEIN: Sure. It's a possibility. I think the magnitude of the growth is what we need to focus on. A well-designed tax cut - which this isn't - can maybe add a couple of tenths to the GDP growth rate over time. If this generates half of that, I'd be surprised. There is no credible estimate that says this tax bill will come anywhere close to paying for itself. And in fact, probably one of the more optimistic scores of that dynamic subtracts about - maybe a third of the cost, so you end up with a trillion dollars in deficit spending.
Now, I have to do a very important fact check on something Peter said. It is not the case that just a few people end up with tax increases from this plan. Once it's fully phased in, on average, every household below 75,000 faces a tax increase. And those at the very top continue to benefit.
INSKEEP: And you did acknowledge that, that at the end of the tax plan...
BERNSTEIN: At the end - basically, the Republicans are...
INSKEEP: ...They did go up. Let me just ask about one - if I can, gentlemen, I just want to direct you to one other thing that I want you to have time to discuss, and it's the repealing or reduction of the estate tax. It goes away in the House bill. It affects fewer people in the Senate bill. This is a tax currently paid only by people who leave, depending on whether it's an individual or a couple, something more than $11 million to their heirs.
Charles Grassley, Republican of Iowa, defended getting rid of the estate tax by saying the following - quote, "I think not having the estate tax recognizes the people that are investing as opposed to those that are just spending every darn penny they have, whether it's on booze or women or movies," Chuck Grassley of Iowa.
Peter Morici, do you think it's only people who are wasting their money on booze who don't have $11 million to give to their heirs?
MORICI: I think that's a terrible question to ask.
INSKEEP: Yeah, of course it is. But that's my job.
MORICI: I understand.
I think that having the estate tax apply to all income would be a bad thing. I think having an estate tax exemption like the House bill - completely phasing it out, getting rid of it completely - would be a bad thing. I don't think it serves the country well to let billionaires leave billions of dollars to their children. It creates an aristocracy. The question is, where should the cap be? Right now, it's at 10.5 million per couple. This would take it up to about 22, 23.
INSKEEP: The Senate version, right.
MORICI: Exactly. I think that's appropriate when we consider the value of things like family farms and so forth. I certainly would not not eliminate it.
INSKEEP: ...You get the last word here.
BERNSTEIN: You can't find a family farm that fits into that cutoff that Peter just described. The estate tax reaches, at this point, only the top 0.2 percent of the wealthiest estates. And there is - and this is really important based on the broader plan. There is just no correlation between tweaking the estate tax - even the corporate tax - and the kind of investments that Republicans expect to see.
So again, what we're doing is transferring income to the top of the scale. And what we haven't gotten to and what we need to - perhaps in a future discussion - is that now the Republicans are going to try to leverage this higher-budget deficit, by dint of this plan, to enforce spending cuts so that the middle- and moderate-income families get a double hit. They get nothing from the tax plan, and then they get dinged on the spending cuts.
INSKEEP: Jared Bernstein of the Center on Budget and Policy Priorities - thanks very much - and Peter Morici of the University of Maryland, Dow Jones and other places. Thanks to you both.
MORICI: Take care.
BERNSTEIN: Thank you.
INSKEEP: We'll have you back for more discussions.
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