Tax Reform Falls Apart

Wisconsin Senator, Ron Johnson, breaks ranks on tax reform stating he is not voting for the bill in its current form. Are Republicans heading towards another policy failure? Is pushback coming from upwardly mobile parts of the electorate? Will Republicans be able to put special interests aside and pass tax reform? Wall Street Journal Columnist, Senior Economist for CNN, and former Donald Trump advisor, Stephen Moore joins Dan and Amy to discuss.

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Dan Proft: Good morning, Dan and Amy. Once upon a time, before the last major tax reform package was pushed through the Congress, a young man from Dixon, by way of Tampico, Ronald Wilson Reagan... Amy Jacobson: By way of Eureka...in college... Proft: Correct, yeah. He addressed the nation in 1985, to make the case for a tax reform proposal, and listen to what President Reagan laid out back in '85. Ronald Reagan (tape): We're reducing tax rates by simplifying a complex system of special provisions that favor some at the expense of others. Restoring confidence in our tax system means restoring and respecting the principle of fairness for all. This means curtailing some business deductions now being written off. It means ending several personal deductions, including the state and local tax deduction which actually provides a special subsidy for high-income individuals, especially in a few high-tax states. Two-thirds of Americans don't even itemize, so they receive no benefit from the state and local tax deduction. But they're being forced to subsidize the high-tax policies of a handful of states. This is truly "taxation without representation". Proft: Taxation without representation...those SALTs, not to be confused with Strategic Arms Limitation Talks Treaty, gotta...these acronyms, have multiple applications. Talking about State And Local Tax deductions, of course, to talk about the tax proposal that is scheduled to make its way through the House today, although with the Senate, the prospects are dimming with Ron Johnson, surprisingly, leading the opposition. Announcing yesterday, the first Republican senator to announce that he is not going to support...quote "I am not going to vote for this tax package"...it's pretty unequivocable. Jacobson: He says it doesn't help small businesses. Proft: Doesn't like the pass-through provisions and I don't think he likes the State And Local Tax deduction cap either. For more on this topic and where the plan stands, and whether or not Republicans are going to manage yet another policy failure while in the majority, we're pleased to be joined by our friend Steve Moore, chief economist for the Heritage Foundation. Steve, thanks for joining us. Steve Moore: Hi Dan, hi Amy! By the way, I was THERE in '85 and '86 when Reagan did that historic tax reform, and that's a great clip you guys found, I mean he's exactly right. So here are, what, 32 years later, and we're still letting these high-tax states, like Illinois, like California, like New York, write off their taxes, it's an...it's an outrage. And look, I don't understand quite why Senator Johnson has now said he's not necessarily for this tax cut, but now I'll say this, I think he'll be there. I think this is going to get done, and by the way, I think the big new...the big new initiative is getting rid of...rid of this Obamacare tax. I think it's a stroke of genius! I think it's a really smart thing. Proft: The mandate. Moore: Yeah. Because I think what this does is basically it's...basically it's a tax on low in...the Obamacare tax is a tax on low income people. So you know, it forces people to buy insurance that they don't want and can't afford. I think that was...I debated Ezekiel Emmanuel yesterday, do you know who he is? Jacobson: Yeah. Proft: Oh, Zeke? Oh yeah, sure, Dr. Death. 75 and out. Moore: How are you doing a favor to people by forcing them to buy insurance that they don't want? He would say, "Oh, well, you know...I know better than they do, this is good for them!" and so on. So, I mean, what hypocrites these liberals are. They say...keep saying it's a tax cut for rich people, and then they do a tax cut for poor people and they're against that too. Jacobson: So when it comes to the Individual Mandate, don't we need everybody to be in the pool to keep prices down, to keep the premiums down? Help me out, please. Moore: No no no no no, Amy. What we need is affordable health care. We need health care where everyone can buy the insurance package of their choice, we want everyone with max...we want maximum competition and maximum choice, and we don't have that right now in the health care market. You know, the people who are affected by the Individual Mandate, these are a lot of the lower-income people, and they're also a lot of young people. They could buy...this is the amazing thing. We are subsidizing people to buy Obamacare, right? AND we're taxing them if they don't buy Obamacare, and they STILL don't want it! That's how bad Obamacare is! The only way to get people to buy Obamacare policies is to metaphorically stick a gun to their head and say "You've got to buy THIS insurance!" Proft: Well yeah, so neither the carrot nor the stick is working on buying Obamacare, but it doesn't seem like it's working with Congress, either. I know you said "I think ultimately Ron Johnson will be there"...mmm, you know, I heard a lot of that in advance of Obamacare Replace, and it didn't happen. And you get the sinking feeling that the prospects for it happening in the Senate are also sinking, despite the fact that the outside observer says, "Well, of course they have to do this, this is a major policy agenda item that has to get done, otherwise they’re risking their majorities in November of '18." They say they believe that to be the case, but it just seems like they're preternaturally unable to come together and act in furtherance of salvaging themselves, and advancing the policy flag on this issue. Moore: Yeah, it's very simple. They HAVE to get this done. It HAS to get done this year. It HAS to get done before Christmas. And the problem is Ron Johnson saying "Well, I don't like this or that provision of the bill," is if everybody is saying "Well, I can't live with this, I can't live with that," you're never going to get the 50 votes. And at some point this has to be a gut check moment for the party. And they also have to stand together and hang together and get this thing done. Look, is it a great bill? No. But it's a GOOD bill, and it's going to help small business, cuts the corporate tax rate, it allows the immediate expensing for businesses for their capital purchases, and then of course it does...for the families, it saves about $2,500 per family, in terms of...if you make $60,000-$100,000, you're gonna save about $2,500. That's a good tax cut, and just get the damn thing DONE. Jacobson: Well, the House votes on the bill today, but then again it goes to the Senate. Corker and Collins haven't really said what side they're on as well, are you hearing anything from them? Moore: You know, they want to get it done. They're hearing a lot of flack from their...you know, constituents back in...you know, Tennessee and Maine. And look, I think they want to get it done. The problem is they have to start getting serious about it. Now we've got a problem, by the way, with Alabama. If we lose that Senate seat, which it looks like they may very well do, the new Senator is sworn in by December 13th, they've got to get the thing passed by December 13th, because I'm sure the Democrat is going to vote for it. So, I don't know, I'm a little frustrated. This should have been done many months ago, but I still think they're going to get it done before Christmas. They're doing it the hard way, but I think they're going to get it done. Proft: Is the fundamental problem that some of these senators are feeling heat from a politically potent if minority part of their electorate? Which is sort of the upwardly mobile, "working rich", if you will, the people that are making decent six-figure salaries, that are really going to be the ones largely financing the relief for middle income families. Moore: Well, what you're hearing now is the "Swamp Creatures", that don't want tax reform. These are the businesses that....these are the realtors, the home builders, you know, the state and local governments HATE this. Because they want the Federal Government to subsidize 40% of their cost. So that's what's happening now, is the special interest groups are like hives, and they are coming out against this. And some Republicans are flinching, in terms of dealing with that. We've gotta put the special interest aside, give a tax cut for businesses, give a tax cut for individuals. If you do this, it will help grow the economy. The economy is already growing at 3% under Trump, I think if you get this thing passed, you add another half-percentage point of growth. So you get the 3-and-a-half percent growth, that's a big deal! Proft: Can you distill what Ron Johnson's specific problem is, cause he talked with the pass about how businesses are treated. Because the rate is cut for them to 25%. So what exactly does he want that he's not getting? Moore: He wants...look, he has a legitimate gripe. Because the tax cut for small businesses is not as good as the...you know what, we...when I put this fund together for Trump with Larry Kudlow, we had a 15% tax rate on small business. And now they're saying you've got a 25% rate, but you only get that on 30% of your income, so Dan and Amy, that's a 35% tax rate for these businesses. That's not a big tax cut for these businesses. Proft: Marginal, yeah. Jacobson: Well, Senator Johnson got a phone call last night from President Trump. So...don't know yet if he'll change his mind. But what again...the millions of middle-income people, *inaudible* keeps saying they'll see a tax increase. How is that possible? Moore: No. Well, if you itemize your deductions, and you live in a very very high tax state like Illinois and Minnesota and New York and California, you might pay up. But look, two-thirds...as you just played from that clip, it was true then, it's true today, when Reagan said it. Two-thirds of Americans don't even itemize their deductions! So the only people who really itemize and get the big benefit of all these tax breaks are the very rich! Proft: All right, he is Steve Moore, Wall Street Journal columnist, chief economist for the Heritage Foundation, Steve thanks as always for joining us, appreciate it. Moore: Have a great weekend guys, see you soon.

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