(Bloomberg) - Senate Majority Leader Mitch McConnell said that any tax overhaul can’t add to the growing U.S. budget deficit, a position that places him at odds with President Donald Trump, who has called for a significant tax cut.
McConnell said in an interview Tuesday with Bloomberg News that the nation’s “alarming” debt requires an approach that would balance tax cuts with new sources of revenue to avoid changing overall government receipts.
“It will have to be revenue-neutral,” he said. “We have a $21 trillion debt.”
In an interview with The Economist that was published last week, Mr. Trump said “it is OK” if tax legislation increases the deficit in the short term in order to “prime the pump” for economic growth.
McConnell, a Kentucky Republican, didn’t commit to completing tax legislation this year, but said he and other congressional leaders have begun regular meetings with Treasury Secretary Steven Mnuchin and Mr. Trump’s chief economic adviser, Gary Cohn, on potential legislation.
“I’m confident we can get it done,” he said. “I’m not going to put a deadline on it.”
While he said rewriting the tax code — along with repealing various business regulations — is a key to achieving economic growth, McConnell’s remarks also showed that the path toward a significant tax overhaul will be difficult. The task will be complicated by what he described as a lack of support among Senate Republicans for some proposals that would raise revenue, including a controversial border-adjusted tax that he said “probably wouldn’t pass the Senate. “‘
The lack of Democratic support for a GOP tax package will require Republicans to use budget rules that require revenue neutrality in exchange for pushing through permanent tax changes with only 50 votes, McConnell said. The GOP controls only 52 of the chamber’s 100 seats.
One potential revenue-raiser, a border-adjusted tax proposed by House Speaker Paul Ryan, faces a dim outlook in the Senate, McConnell said.
Ryan has proposed to replace the existing corporate income tax with a 20 percent levy on U.S. companies’ domestic sales and imports. Exports would be excluded. The proposal is estimated to raise more than $1 trillion over a decade. But it has drawn opposition from retailers, oil refiners and other industries that rely on imports. Leaders of those businesses say the tax would raise consumer prices on basic items.
McConnell declined to give his own views on the border-adjustment measure, but he made note of its abundant opposition.
“You got, for example, two senators from Arkansas,” he said, referring to Republicans John Boozman and Tom Cotton, who represent the home state of Wal-Mart Stores Inc. “Need I say more? It’s a statement of the obvious that the prospects of that would be rather bleak.”
The tax’s proponents argue that it would result in a strengthening dollar, evening out the tax’s effect on prices over time. But some economists question whether exchange rates would react predictably.
“The critics say it’s too risky, so you could blow up the economy in the process,” McConnell said.
Another proposal in Ryan’s blueprint that would raise more than $1 trillion over a decade — eliminating the corporate tax deduction for net interest expenses — also has its detractors in the Senate, McConnell said. “There are going to be critics of any way you try to provide revenues to buy down rates,” he said.
Meanwhile, McConnell said he’s taking part in ongoing meetings with Mnuchin, Cohn, Ryan and Republican leaders of tax-writing committees. They’re seeking to agree on a single approach to a tax overhaul before proceeding. An initial meeting took place a few weeks ago, he said.
“We thought that would be a good way to begin would be for us to reach some kind of agreement on what we’re for, rather than having a whole lot of different versions,” McConnell said.
Ryan last year released a blueprint for a tax overhaul that included the border-adjusted tax, the elimination of the corporate interest deduction and other ways to raise federal revenue that would help pay for tax-rate cuts. The plan also assumed that Congress would repeal a menu of tax increases imposed by the Affordable Care Act that are worth almost $1 trillion over a decade. Doing so would reset the federal revenue baseline, Ryan and others have said, making it easier to achieve revenue neutrality in subsequent tax legislation.
The House voted to repeal the health-related taxes, which include a 3.8 percent net investment income tax on high earners, in a bill it approved earlier this month. But McConnell stopped short of saying that any Senate health-care bill would preserve those cuts. While he said it’s important to repeal and replace the current law, he declined to “handicap” which provisions might be included in final legislation.
“My goal is to try to get to 50 votes,” McConnell said.