The House of Representatives Thursday afternoon passed its version of tax reform by a vote of 227-205. Of the 13 Republican no-votes, 12 were from the high-tax states of New York, New Jersey, and California, where millions of residents stand to suffer from the replacement of the century-old federal income-tax deduction for all state and local taxes (SALT) with a simple $10,000 cap on the mortgage-interest deduction alone. (The bill also reduces the deductibility cap on the mortgage itself from $1 million to $500,000, while eliminating it for second homes.) The average annual SALT deduction exceeds $10,000 in at least 20 states, with anywhere between 17 percent and 46 percent of a state's filers itemizing it.
Of the 16 Republicans from those three high-tax state who voted yes, as well as their six counterparts from the Illinois delegation, that $10,000 mortgage carve-out was critical for their support. It's also totally absent from the Senate version of the bill (which keeps the mortgage cap at $1 million). Therefore, reluctant "yes" votes needed assurances, such as the one given over the weekend by Ways and Means Chairman Kevin Brady (R-Texas), that House leadership will not "accept" a take-it-or-leave-it bill from the more politically delicate Senate.
But is that really true?
House Leadership's message to the Republican conference going into the tax reform vote today was don't bash the Senate tax bill.
- They're gearing up to adopt a lot of the Senate bill
- They're just being super nice about the Senate's process
— Tara Golshan (@taragolshan) November 16, 2017
We already watched this scenario play out last month: After the House sweated over and eventually passed a theoretically deficit-neutral 10-year budget blueprint, the Senate tacked on $1.5 trillion in deficits, and the House responded with a hi-five, because tax cuts. As was the case with the serially failed attempts to repeal and replace Obamacare this year, even though the policy-poor legislative monstrosities polled terribly with the public, Capitol Hill Republicans were generally not eager to be the ones to tell President Donald Trump that he wouldn't be getting his win. Given that cutting taxes is about the last thing that unifies all elected Republicans, and the clock is running out before 2018 midterm season, the political desperation is already intense—imagine what it would be like if the Senate comes back with a 51-50 vote with zilcho state/local tax deductions, and now the House members who have already voted yes to (a very different) reform wanna get in the way of the tax-cuts train?
So on Thursday morning I put the question to Rep. Thomas Massie (R-Kentucky), the iconoclastic libertarian who had voted against the 10-year budget but was about to be an enthusiastic "yes" on tax cuts, during an interview on SiriusXM Insight's Stand UP! with Pete Dominick. "Do you think that it will actually go to a conference committee," I asked, "or is it going to be another fold job by your pals in the Freedom Caucus?"
Massie's answer: "I think it's highly likely that we pass whatever the Senate comes up with, simply because they've got a narrower path to getting something done, and they'll say, 'If you change it too much, we won't be able to pass it again over here in the Senate.'"
Even if it does go to committee, Massie predicted, it will tilt heavily toward the Senate. "I think it is likely the House passes whatever the Senate comes up with, or if it goes to conference, which it could do because they might want to buy more time to get this thing right, I think whatever comes out of conference will look more like the Senate bill than the House bill."
After the jump, an edited transcript of our conversation, which touched on the GOP's spending problem, the threat of a debt overhang, and more.
Reason: You and I, Thomas Massie, agree more than disagree on things.
Massie: Is that good?
Reason: I think so; I don't know. I mean, you're the one that has to live with yourself.
[We agree on] any number of things: on civil liberties, on hemp—which you grow on your off-the-grid compound there—and a bunch of other stuff. You are, last I heard, an enthusiastic "Yes" vote on this tax reform package, even though people like the Congressional Budget Office have said it's going to add 1.7 quadrillion pennies to the deficit. Walk me through how the person who hates the debt as much as you do, and who in fact voted against the precursor bill to all of this, which was the 10-year budget non-binding resolution based on a whole pile of fiction, how are you an enthusiastic Yes given this, Mr. Massie?
Massie: Well, the one thing that probably unites you and I more frequently than anything is that we want to reduce the size and scope of government.
Massie: I determined shortly after coming to Congress and looking at the situation here that the size and scope of government is determined by the spending bills, not the taxing bills. This is why I voted against the precursor to this bill, which was the budget. The budget that the Republicans passed adds four or five trillion dollars to the debt and does not balance, so I voted against it.
In good faith, I can vote for these tax cuts, because if we voted for a budget that I would be for, these tax cuts would not add to the debt or the deficit.
Reason: Right, but that's a 10-ton "if" there, because that's not the reality that we live in. The reality would be that we—
Massie: Wait, wait, wait, let me back up. You're saying because my colleagues are irresponsible in spending us into oblivion, I don't get to follow my ideology and vote for tax cuts? I reject that.
Reason: I am not telling you what to do. But in the reality that we live in, if you cut taxes—we agree that the spending is out of control, so it's basically a choice between tax-and-spend, or tax-cut-and-spend. We had tax-cut-and-spend under George W. Bush, and…on one hand you get the thing that you and I like, which is that more money [is] in the pockets of most people, though not people like me who live in New York, because you people are trying to screw me. I get that, that's fine….
Massie: Look, when you make the tax code more fair, the people who benefited from an unfair tax code are going to be a little bit upset.
Reason: Right, although you should've gone after the mortgage interest rate deduction more than the state-and-local-taxes, but let's—
Massie: I want to get rid of all the deductions. All of them. Why are we doing any social engineering in the tax code?
Reason: Okay, again we agree, but….First of all: Do you just agree with the concept that that combination is going to grow the debt larger than it otherwise would be if you didn't do tax cuts? Or do you think that the supply-side magic dust is going to make that $1.7 trillion into something that's less significant?
Massie: Well, math is hard, but I like to do math. You're right: If what you're saying is that the debt is going to go up after we cut taxes, that is true, that will happen. And so I am not immune to that charge. But let me say this differently. Here in Washington, D.C., they keep saying that tax cuts need to be "paid for." That's a ridiculous notion. I want to pull my hair out, or throw my shoe at people here in D.C., when they say tax cuts need to be paid for.
Spending needs to be paid for. Tax cuts do not need to be paid for. They've got the whole notion backwards. This money is already theirs. That everything that you're going to make for the rest of your life belongs to the government, and then if they're going to give you some of that back they have to pay for it? No. What they need to do is pay for spending. And so, Matt, if we would have cut spending…let me give you my favorite example.
Next year in the budget, in the appropriations, we've got about 43 and a half billion dollars for Afghanistan and military spending, maybe seven billion for reconstruction. That's 50 billion dollars. They like to do these things over a 10-year window; if you multiply that times 10, that's $500 billion, half a trillion dollars. If they would just get us out of Afghanistan, you could pay for a third of—and here I am, I'm using the freaking swamp-speak!—but you could offset a third of the tax cuts. I'm not even immune to it….
Reason: I get what you're saying on the pay-for language, that there's something fundamentally wrong with that. On the other hand, if you look at what happened in Indiana, Mitch Daniels cut government first, and then Mike Pence afterwards cut taxes. For me, that makes sense. You have reduced the size of the thing.
The part of that that I would like you to quickly address is the concern on the debt overhang, the debt itself. If it's going to increase, is that not also a worrisome drag on economic growth in and of itself, in a way that makes you at least pause before enthusiastically voting yes later today?
Massie: Sure, it does.
But let me tell you, the best reason to vote for this bill—and it's not a populist reason, but I'm ready to go out there on a limb and say this—the best reason to vote for this bill is that it makes our corporate tax rate more competitive globally, and our companies won't be incentivized to move overseas or sell their brands to overseas companies. That is the best reason to vote for this….
Will the growth that's caused by the cut in taxes make up for the lost revenue? Will the government see more revenue instead of less revenue after we cut taxes? No, I don't believe you're going to get 100 percent of this back. You may get two-thirds of it back. But we have to cut spending, we have to do it. And I vote to cut spending every stinking time, but just because my colleagues don't believe that we have to cut spending doesn't mean I can't vote to cut taxes.
Reason: In my estimation, the political party is revealed when it controls things, when it actually has power, as opposed to what it said when it didn't. And I think it's been interesting to watch, especially after the 2009/2010 season, politicians like you coming in, Rand Paul in 2010, and all the focus was so much on spending, cutting spending, opposing Obamacare, debt ceilings and all this kind of stuff. Then when you control—not you, when they in this case control power—they are revealed. Mick Mulvaney, your colleague and possible friend, went from being almost as big of a fiscal conservative as you in the House to now as the Office of Management and Budget director or whatever saying, "We need new deficits!"
I think it's remarkable to see how much the spending cut talk was not real. Let me ask you a quick—
Massie: Let me just take up a little bit for Mick Mulvaney, the OMB director. He sent us a budget that cut a lot of things. That is Trump's budget. But here in Congress they threw it in the trash, and they just…took last year's budget and added some spending to it and rolled on. If you did follow what Mick Mulvaney wants to do, of course he's got a boss now, and the boss isn't 750,000 people in South Carolina, his boss is Donald Trump, so he's subject to those constraints.
Reason: Let me follow on with that: The Senate does a lot of disregarding of what the president wants, but it also does a lot of disregarding of what the House wants. If the Senate passes—I think it's a big "if" at this point if they pass anything, given Ron Johnson and Bob Corker and others—but if they pass something that cheerfully disregards a lot of what was done in the House, do you think that it will actually go to a conference committee? Or is it going to be another fold job by your pals in the Freedom Caucus, who will say, "Ah, well, tax reform is important, so let's just rubber-stamp this like we did the 10-year budget resolution"?
Massie: Can I tell you something I've never said, and I may never say again? I think the bill is getting better in the Senate, not worse, and I say that honestly. Particularly on the individual, personal tax cut side. The House bill had trillions of dollars of tax reform for individuals, but it only had billions of dollars of tax cuts for individuals. Which means this House bill—and I'm going to say this, and most Republicans aren't going to be this honest with you—some people are going to see their taxes go up.
On average, most people will see their taxes go down, but because we've got a lot of reform and not enough tax cuts, you'll see some people's taxes go up. The Senate bill is better in that regard. As far as I can tell, they triple the amount of tax cuts that go to W2 wage-earners as compared to the House bill, which means it's less likely if you're a W2 wage earner that you will see your taxes go up under the Senate bill.
Reason: […] Do you think there's going to be any drag in the House, or is it pretty smooth sailing at this point?
Massie: There are people like my colleague Walter Jones from North Carolina who thinks that the debt is more important than this tax bill, and he would not be subject to the charge that you leveled against me, because I think he's voting no on this bill even though he's a conservative. He's as conservative as me, maybe more so.
I think they've got the votes to pass it in the House today. I hear the President's coming over in just a little bit to do a rally with the Republicans, and I hope he doesn't say it's a "mean" bill after it passes, after he comes over here and does the rally. But it'll pass and then it's off to the Senate, and they'll have to do something after Thanksgiving. I think it's highly likely that we pass whatever the Senate comes up with, simply because they've got a narrower path to getting something done, and they'll say, "If you change it too much, we won't be able to pass it again over here in the Senate."
So I think it's likely—you asked if this would happen—I think it is likely the House passes whatever the Senate comes up with, or if it goes to conference, which it could do because they might want to buy more time to get this thing right, I think whatever comes out of conference will look more like the Senate bill than the House bill.