tv Washington Journal Kyle Pomerleau Discusses Tax Policy CSPAN March 28, 2017 8:02am-8:36am EDT
immigration is an issue. but building the wall isn't going to help. i and communications major. -- am a communications major. i would like him to lower the rate of unemployment. road ons from the c-span. >> washington journal continues. host: joining us now is kyle pomerleau of the tax foundation. he serves as an economist and we are going to talk about the upcoming debate on tax reform. what is the president and white house's overall goal in tax reform? guest: i think what they are trying to do and this is clear from the campaign's reform a tax code that they think is broken.
the last time it was reformed was 1986. years is0 years or 31 enough time for the old tax code and now it's time to update agreement with the problems on the tax code. there's a lot of complaining about that. host: what would the republicans say is the chief problem? guest: they would probably point to high marginal tax rates, high burdens of class on the middle tax. not all of their claims are correct but this is what we hear from them most of the time. what the keytold strategies they are going to employee is consolidating the tax rate. what are those three and why are they important? guest: the house gop plan -- the trump proposal keys off of the house gop plan. they consolidate the three 12.5%, 25% and 33%.
in terms of tax policy there is no particular rhyme or reason to what rates you choose or the number of brackets. these are the ones that are in the plan. who falls into those brackets generally? guest: the code overall is going to be less progressive. top bracket of 33% is going to be hitting taxpayers at around $150,000 in taxable income. deductions ae little bit. we're not going to see the top bracket kicked in at $450,000 like it does under current law. host: how are the middle and low income going to be affected? the standardxpand deduction. they expand the child tax
credit. they would convert the personal exemption which right now is a remove some income from your taxable income. they will convert that into a nonrefundable credit. lower income taxpayers may see a tax decrease as a result of this plan. host: we hear sometimes from viewers that these tax proposals will generally benefit the rich. what do you think about that proposal? guest: looking at how the burden shifts under this proposal, all income levels get at least a small tax cut. it is true that under current methodologies for distributed taxes the top 1% does see a larger tax cut. that is proving primarily by the top rate is going down from 40% to 33%. host: our guest is here to talk about these proposals the white
house and republicans. as far as tax cuts are concerned. if you want to ask him questions about the proposals. your chance to do so. democrats (202) 748-8000. republicans (202) 748-8001. independents (202) 748-8002. what did the failure of the passage of a health care bill do for this proposal? guest: there are two pieces. first is the political aspect, not being able to get health care reform done looks bad politically. that you are not able to get something done. y i don't think it affects the calculations. we heard you didn't get rid of the aca so now tax reform is harder. i think that's incorrect. the aca is a set of taxes by
itself. tax reform is a set of taxes by itself. they are totally separate. if you do aca first it really doesn't impact your tax reform that much. the: the repeal of taxes on apa had no effect as far as tax reform? guest: correct. there is no interaction between those. they don't necessarily need to be cut as part of tax reform. if republicans think that is something that has to be done than tax reform becomes harder. it's not necessarily the case that they need to. paul ryan has already indicated that when he says obamacare is the law of the land that he is also talking about the taxes that come with that. in my mind i don't think there is any additional budgetary challenge that there is a failure to repeal and replace aca. host: we hear the term revenue neutral.
what is that? guest: the concept that when you reform the tax code or change any tax bill that any tax cuts are made up with a base broadening or so the level raised by the federal government is the same going forward. case kevin brady and paul ryan have indicated that their goal with tax reform is to be revenue neutral by first cutting marginal rates, broadening the tax base and also using something called dynamic scoring or accounting for the as a result of cutting marginal tax rates. togetheree pieces put they hope that their tax plan doesn't reduce federal revenue. host: as far as reality, is it possible to make these reductions without seeing some drop in revenue? guest: i think it's possible. they may need to revisit some of
the plan. now we find that even under dynamic scoring you are going to be losing revenue. it is something they will need to look at. their rate cuts may be a little too much for the base broadening they have in the plan. is it possible they are less ambitious about they want to see? guest: that's possible. i'm not sure if that's going to be the case. kevin brady is already pushing tax reform and he hasn't indicated that he's ready to change any aspect of his plan. host: our first call comes from jay in south carolina on the democrat line. go ahead. caller: good morning. it's a two-part question. my first question is with the new tax reforms, are they really going to benefit the middle and
lower income class? whyis one of the reasons the affordable care act was repealed by republicans is because it was a stipulation in it to benefit the wealthy? the tax reform proposal that we currently know of, do they cut taxes for the middle class and lower income taxpayers -- it depends on which plan you are looking at. the house gop plan has a modest tax cut for all income levels. every specifico individual taxpayer. when we looked at the plan on average every income group got a tax cut. the top got a much larger tax cut. is in the acace and what the distributional impact of the taxes there are.
a lot of the taxes as part of the aca are tilted very heavily on the top. 1% a a largertop share of the total taxes that were passed as part of the affordable care act. thus cutting those taxes would cut their taxes the most. host: independent line from pennsylvania. this is alan. caller: the question that i have is what is your guest's opinion on hr 25? that's the fair tax bill. guest: the fair tax would eliminate most federal taxes, replace it with a national retail sales tax. would tell you that
is a good thing. you're moving to a consumption-based tax. i think the proposal as it is, there are a few drawbacks. i'm not entirely sure that the rate at which it is said is adequate to raise enough revenue for the federal government. you are talking about a sales tax across the board that maybe in excess of 40% and politically i don't see that flies. in addition it has a few administrative problems that come along with it that i don't think the crafters have fully thought through. host: from oklahoma, democrat line. ok.er: i am listening to all that and i don't believe a word you all are i live on a fixed income. i am satisfied with obamacare.
i don't know what you guys trying to do. i don't know. expert on thet an affordable care act. too many proposals that have been put forth so far at least in tax reforms that will have a large impact on fixed income. has put forth anything that would impact social security. i guess it is wait and see if there is anything else that pops up. host: where are democrats as far as these proposals? before the failure to repeal and replace the aca we didn't hear much from democrats. failure there was a with the first legislative agenda democrats are starting to pop up and challenge some of the tax reforms. there are some
proposals within the house gop plan that democrats could learn to like if the rates were adjusted to be acceptable for democrats. that remains to be seen. so far the only voices we have heard that have popped up in the last couple of days have been generally negative on tax reform. in thehat about those house freedom caucus and moderates? would they be automatically on board? not clear. generally republicans like a lot of the proposals in the house gop plan. is what is the revenue goal. we have heard already that the house freedom caucus is more comfortable with an overall tax cut. something that reduces revenue. we will see if that's the dividing line rather than any specific policy proposals in the plan. is joining us from georgia on the independent line.
--r own with kyle pomerleau you are on with kyle pomerleau. caller: i don't like any of those numbers. if you make $10 million a year you have to cut a check for $3 million to the federal government. that's ridiculous. if it's not going to generate enough revenue for the government that they need to downsize. that's my comment. thanks. in terms of how it's going to be changing tax burdens quite clear it is that if you look at the house gop plan you may not be satisfied with the size of the tax cut but it is still a tax cut. at least in static terms we estimated it would cut taxes by 2.4 trillion dollars. if you assume that is the amount you need to make up already you're talking about either raising rates slightly or having to cut spending already.
even if you are looking at the notent budget where we are changing taxes whatsoever there is already a disconnect between the amount of spending at the federal level and taxes. in baltimore, maryland. republican line. caller: thanks for taking my call. i follow the health care plan very closely and there was a lot of rhetoric about phase one and phase two. if phase one fails then phase two is destined to fail as well. we never really saw what phase two would be. it was kept just like the health care bill behind closed doors if it was created at all. perhaps they were waiting to create it if the health care plan passed. i would be interested in further exploring why those two things
are exclusive. can you go a little bit further about how health care is independent of its tax system? guest: we will explore this a little bit more. they had about $600 billion in taxes. if you are appealed aca, those taxes would go away. the overallduce revenue baseline of the federal government. however when you look at the tax reform plan, those taxes are entirely separate. that tax proposal would reduce revenue by about $2.4 trillion on a static basis. it is not contingent whatsoever on the aca taxes whether they pass or not. you can imagine a situation
where that $2.4 trillion tax cut the aca taxesand are still in law. are completely separate. it is not necessary that one has to happen in order for the other to happen. host: the wall street journal said the failed health bill wouldn't make tax reform easier because it created budgetary offsets that made it easier to cut corporate taxes without adding to the deficit. guest: i'm not entirely sure where that comes from. that might be a little bit of an overstatement. i need to look at exactly what they are talking about. proposals were very very small. host: where our republicans at? it's not 100% agreement but we will look at the house gop plan. they are taking the corporate income tax 35 percent under
current law and converting it to --t academics call latest destination-based cash flow tax. it is a business cash raised -- rathered on cash flow than the typical accounting process. it is also based not on the location of reduction but the location of sales. this is a pretty significant change that would add a lot of taxomic efficiency to the code. it's a matter of getting agreement on that proposal itself and making sure everyone understands at least the economics of it. host: can you give an example of how that works? guest: will start with current law. company that are a invests $1 million in a machine. under current law that capital asset needs to be depreciated over several years and over time you get the full deduction in nominal value.
over time you lose some of the value to to inflation. tax changes that. instead of depreciated over time that million dollar access -- asset is immediately deducted. that's the cash flow aspect. your cash in minus cash out here . host: explaining these proposals for tax reform. al on the democrat line. they need to stop trying to play the game they have been playing since 1990. all you got to do is put $1.4 million in medicaid. $1.4 million in social security. raise the minimum wage and everybody will be happy. he's talking about back in the 1980's and 1970's and don't know
what he's talking about. i wish they would stop. and everybody would be happy. have a happy day. guest: so far we don't really know whether entitlement reform will happen. it is certainly not part of the tax reform proposal. really touching taxes like the social security payroll tax. will see depending what happens with tax reform what that means for retitle reform -- entitlement reform going forward. host: we learning details about it. (202) 748-8000 democrats. (202) 748-8001 republicans. (202) 748-8002 independents. are there lessons to be learned when this was last tried in 1986?
how does that affect the prospect of this going through? guest: tax reform in general is just tough. 1986 was a tax reform. significantly lowered marginal tax rates and brought into the tax base. that was the last time that happened. a thickly we have done tax cuts and tax increases. when you are keeping the overall youl of revenue the same may be giving to one group and taking away from another. get this political issue where groups will be playing off of one other trying to keep their provision because they think it's important to them but they are ok with somebody else losing their provisions because that will be paying for their rate cuts. is this built on the idea that the trump you will seen says
growth in the u.s. economy and how much of these assumptions are built on the idea of growth? one of the big goals of tax reform for the house gop is to grow the economy and they did build their tax reform proposal around this idea. .he cash flow tax economists will tell you that is much more economically efficient and would encourage a lot more investment in the united states. the plans also reduce marginal tax rates on working. .hat is a big aspect of this something worth paying attention to the end of the day. the structure of the tax code really matters in terms of how it's going to impact the economy. anna on the republican line. caller: i wanted to ask two different things. will this plan take out a lot of the high-end loopholes that are
as well asorate law the over the 1% people? this newquestion is plan itemized deduction. it sounds like you have to be over a threshold of 16,000 if you are over 65 for being able to itemized this new plan. just eliminated a lot of people being able to itemized which runs that now you can't deduct property taxes, sales taxes. in essence isn't that really eliminating a lot of the middle and lower class people being able to itemize? addresshe tax plan does deductions and what people call loopholes both on the individual side and on the corporate side. on the individual side the plan
put forward by the house gop would eliminate most itemized deductions including the one you mentioned, the state and local tax deduction. there business side aren't really a lot of specific loopholes in the corporate code. creditse deductions and for small activities here or there and the plan does eliminate those. the one thing the plan does do is that the change in the base to u.s. sales gets rid of the ability for companies to shift profits overseas. one of the biggest concerns under current law is companies are able to move their profits from the united states to low tax jurisdictions. under this proposal that would no longer be possible. deductions ison the concern about eliminating itemized deductions and how that would harm lower income individuals. deductions itemized
as something that overwhelmingly benefits high income earners. deduct is based on your marginal tax rate. as you earn more income your marginal tax rate goes up. eliminating itemized deductions ends of increasing taxes for the top more than it does for the bottom. when we analyzed this we saw tax cuts across the board including those for the bottom in the middle. host: dimitri on the democrats line. caller: good morning. wasn't it back before you started taking income tax from a person's check for what they work for -- wasn't it a days work for a day's pay? and is it true that on account time, moneyat the was taken out of people's checks to buy ammunition. is that true?
guest: taxes come out of your paycheck, withholding every single week. thee income taxes go to federal government for different priorities. back in the 2000s there were two warrants and that was part of the funding. a lot of that war was actually debt-financed so it wasn't directly increasing people's taxes. during the 2000 there was a big tax cut. a lot of people actually saw a decline in what was being taken out of their paycheck. host: one of the nuances, something called a border adjustment tax. what is it? one thing, it is not a separate tax. it is part of this destination-based cash flow tax. it's a border adjustment. moving the tax base from
domestic production to domestic sales. the way it works is that the limits the deduction on imports so it brings imports into the tax base. it eliminates the tax on export. that effectively goes to the destination-based. as part of the proposal i think it's an important component for three reasons. one it broadens the tax base in the short run and that allows for marginal rate cuts that republicans think are important. it can drastically simplify the tax code by eliminating a lot of the international tax regulations that currently exist. it would significantly eliminate the ability for companies to shift profits out of the united states. i think it accomplishes three main policy goals. the overallt affect price of a good or service that goes back and forth between countries? guest: most economists would tell you no.
it is mainly through either currency adjustments level adjustments. consumers would not expect an increase in price levels relative to their wages. -- cost of goods at the store would not change. host: one more call from paul in indianapolis. good morning. one subject to haven't coverage it was the carried interest. i had heard a comment on one of the stations that carried interest benefit was going to be eliminated. true wouldn't that greatly raise the taxes on some of the very wealthy like mr. berkshire hathaway? in the house gop proposal
of carried interest. administration has stated multiple times that a goal of theirs is to eliminate the special tax treatment of carried interest whether it is a for specificrease taxpayers. overall it is actually a small component of taxation in the united states. we are talking about a tax increase of about 15 to $20 billion over a decade compared that movestax plan around a couple trillion dollars over a decade. walk us through the timeline of these proposals. guest: not entirely sure. i think after the failure to repeal and replace aca, it did put the attention on tax reform. we still don't have legislative
language for the house gop plan. we don't have a walk us throughe timeline of these proposals. guest: concrete proposal from the trunk campaign or trump administration. we do have campaign proposals from trump. we were promised an additional plan a couple weeks ago and we have yet to see that. it's hard to put a perfect timeline on this. one thing to keep in mind is that tax reform is quite difficult. some time.ke even once we see legislative language i think there will be a lot of back and forth. the process they slow down as it gets to the senate. this is one possibility where lawmakers are going to take their time and it's not going to be as rushed as the aca repeal. host: nothing by the august break perhaps? guest: that is a very optimistic scenario if that were to happen. host: kyle pomerleau talking about these proposals. thank you for your time.
next, to members of congress joining us. walter jones of north carolina and john garamendi of california. they are talking to us about their legislation aimed on getting u.s. troops out of afghanistan. that conversation is next. ♪ >> in case you missed it on c-span. national coordinator for child exploitation prevention during the obama administration. >> i used to think the hardest thing i would ever have to do was look into the eyes of a child and listen to her story about being abused. i was wrong. the hardest thing i ever had to do was watch their abuse.