Before President Donald Trump launched his latest call for major tax cuts, he took a moment to offer support to Texas and Louisiana in the wake of Hurricane Harvey.
“We are here with you today, we are with you tomorrow and we will be with you every single day after, to restore, to recover and to rebuild,” Trump pledged during a speech at a Springfield, Missouri, manufacturing plant Wednesday.
That moment revealed how the storm—which has claimed more than 30 lives, according to the Associated Press, and caused as much as $90 billion in damage—may add new limits to Trump’s goal of delivering historic tax cuts. The president has already called on Congress to quickly deliver a Harvey aid package, but its multibillion dollar cost will stiffen resistance among lawmakers to any tax changes that aren’t offset with new revenue.
“Tax cuts not offset or at least partially offset just took a huge hit from Hurricane Harvey, although Republicans may not know it yet,” said Stan Collender, a former Senate Democratic budget aide.
Republicans in Congress, who were already tentatively planning to combine a debt-ceiling increase with a short-term spending bill to keep the government open, may now feel urgency to add Harvey-relief provisions into that mix—creating a brand-identity problem for some in the party.
“That has everything you want except Republican fiscal responsibility,” said Representative Dave Brat, a Virginia Republican and a spending hawk. “We’ve got to help the victims of Harvey, we’ve got to raise the debt ceiling, but where is the responsibility for not leaving a fiscal mess to our children and grandchildren? That bill could come from Democrats.”
Pelosi’s Concern
On Wednesday, the House’s chief Democrat eagerly voiced concerns over the deficit in a response to Trump’s tax speech. “If Republicans have their way, they will blow a huge hole in the deficit, gut Medicare, Medicaid, Social Security and the Affordable Care Act—all just to fund deficit-busting tax breaks for the high-end,” House Minority Leader Nancy Pelosi said in an emailed statement.
GOP leaders had already said that any tax plan would have to pay for its cuts with new revenue. “It will have to be revenue-neutral,” Senate Majority Leader Mitch McConnell said in May. “We have a $21 trillion debt.”
Representative Peter Roskam, a Republican who chairs the House Ways and Means Committee’s panel on tax policy, stuck to that line on Wednesday during an interview with Bloomberg Television—though he added that it’s an “open question” as to whether Congress will adhere to revenue neutrality in tax legislation.
The question is not just academic. Republicans, who have a slim 52-seat majority in the Senate, plan to pass a tax bill under a budget procedure that would allow them to bypass Democrats’ opposition. But that procedure, known as “reconciliation,” also holds that any tax cuts that add to the nation’s long-term deficit would have to be set to expire.
‘Better than Nothing’
Treasury Secretary Steven Mnuchin has said repeatedly that temporary tax cuts aren’t the worst outcome. “Permanent is a lot better than temporary, and temporary is a lot better than nothing,” he said earlier this month.
In general, Trump’s administration has tended to downplay potential budgetary effects while promising “the biggest tax cut and the largest tax reform in the history of our country.” On Wednesday, in a speech the White House billed as the first of several aimed at campaigning for a tax overhaul, Trump avoided repeating the superlatives, but stuck to similar themes.
While his remarks included few specifics, Trump repeated his desire to slash the corporate income tax rate to 15 percent from 35 percent. He also called for an unspecified middle class tax cut—previously, he has sought a doubling of the standard deduction, which would benefit working-class taxpayers. Together, the two provisions would cost an estimated $3.7 trillion in revenue over 10 years, according to estimates by the nonpartisan Committee for a Responsible Federal Budget.
“Congress shouldn’t be debating a deficit-increasing tax cut because our debt is at record levels,” said Maya MacGuineas, the CRFB’s president.
Also, she said, the need to pay for Hurricane Harvey relief “is a reminder of why it is so important to have our fiscal house in order.”
‘The Right Thing’
Trump did include one way to raise revenue in his Wednesday speech—though he characterized it as a way to simplify the tax code: closing loopholes that benefit the wealthy. He didn’t specify the loopholes in question, but he drew chuckles by saying such changes would hurt his own tax planning.
“Maybe we shouldn’t be doing this, but we’re doing the right thing,” said Trump, a billionaire businessman.
As Congress returns from a monthlong recess next week, the bill for Hurricane Harvey’s damage will make it more fiscally irresponsible than ever for lawmakers to consider tax cuts that aren’t paid for, said Bob Bixby of The Concord Coalition, a deficit-watchdog group.
“What needs to happen when Congress returns is a budget deal acknowledging that things need to be paid for and that tax cuts don’t pay for themselves,” Bixby said in an email. “It makes sense to borrow for an emergency like a hurricane but not for a tax cut that will contribute to an already unsustainable fiscal path.”
