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September 21, 2017

Tax Reform Progress


House Republicans like to grouse about the Senate as a legislative graveyard, but on tax reform GOP Senators may be saving the day. A tentative deal between Senators Pat Toomey and Bob Corker to create $1.5 trillion in tax-cutting room as part of the budget resolution could rescue the House from its familiar factional dysfunction.

The Senators—key voices on the Budget Committee—announced their deal without specifying a budget number, but our sources confirm that the handshake is for $1.5 trillion over 10 years. This means the budget resolution will not have to bow to the Beltway golden idol known as “deficit neutrality,” so it can be a net tax cut. This creates more budget room for cutting rates and increases the chances that a tax reform will be large enough to spur the economy and raise incomes.

In an ideal world, Congress would put policy above this process mumbo-jumbo. But in Washington a budget outline is necessary for passing tax reform under the Senate's reconciliation process that allows a bill to pass the upper chamber with 51 votes. The alternative is relying on the tender mercies of Chuck Schumer's Democrats to come up with 60 votes.

In an ideal world, the Senate deal would create room for tax cuts of $2.5 trillion or more. That's at least how much more revenue the government would get if the economy returned to its historic growth rate of 3% a year from the Obama era's 2%. Better policy like tax reform would help growth get to 3%, but Senate leaders fear such an estimate might scare some Members and they can only afford to lose two of their 52 GOP Senators on the floor. The $1.5 trillion figure is fiscally conservative to a fault, and if Republicans can't agree on that much they ought to pack up and go home.

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