Majority Leader McConnell Attaches ‘Revenue Neutral’ Standard to Tax Reform

Senate Majority Leader Mitch McConnell on Tuesday said tax reform will have to be “revenue neutral,” citing the national debt growth under Barack Obama. However, he also said that the Border Adjustable-Tax (BAT) House Republicans proposed is unlikely to pass in the U.S. Senate.

“It will have to be revenue neutral,” Mr. McConnell said in an interview with Bloomberg TV, adding that BAT “probably wouldn’t pass the Senate.” The majority leader also said that he and others like Speaker Paul Ryan, R-Wis., are negotiating other plans and that he would like to finish tax reform during “this Congress.”

That leaves lawmakers with a big problem: How do they find another $1 trillion over 10 years to get the bill revenue neutral?

But for some, that translates into eliminating the middle class tax cut President Donald J. Trump proposed and promised during the campaign and only passing corporate tax reform. While economic analysis shows it would have a greater impact, it would also be a political disaster for a Republican Party resisting the popular populism that helped President Trump smash the Blue Wall in the Rust Belt.

“The good news is that almost all Republicans believe in two of three goals and at least pay lip services to the third goal,” CATO economist Dan Mitchell recently noted. “The bad news is that they nonetheless can’t be trusted with tax reform.”

He cited 1) lower tax rates in order to encourage more productive behavior, 2) eliminate double taxation in order to enable saving and investment and 3) ending distorting preferences in order to reduce economically irrational decisions.

Mr. McConnell said he didn’t want to put a “strict timeline” on when something can pass, but said he’d “certainly want to try to complete it this Congress.”

He pointed out the last serious effort at comprehensive tax reform took several years. However, the Congressional Budget Office (CBO) also did not predict the Reagan tax cuts would be revenue neutral (they said the opposite) and it resulted in more revenue collected by the U.S. Treasury Department.