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Panelists Game Out Election's Likely Effects on Taxes: Transcript

Posted on Oct. 28, 2020

The November general election is nigh, and its outcome will likely have a significant effect on the future of tax policy in the country. Jonathan Talisman, founder and managing partner of Capitol Tax Partners, and former assistant treasury secretary for tax policy, and Mark Prater, managing director in the tax policy services group with PwC and former chief tax counsel and deputy staff director for the Republican staff of the Senate Finance Committee discuss what to expect in the election. They then pivot to how those potential outcomes could affect tax and budget policy. The discussion was held in an October 21 webinar titled “Taxing Issues: Taxing Policy After Election Day: What's Next?”

Tax Analysts President and CEO Cara Griffith moderated the event, which can be viewed on YouTube. A transcript is below.

Cara Griffith: Welcome everyone. I'm Cara Griffith, the president and CEO of Tax Analysts. I'm so pleased that you've joined us today for a timely discussion on the future of tax policy. As you know, the upcoming elections for both president and Congress will greatly affect the direction of tax policy in the United States. We're thrilled once again, to have a large audience tuning in not only from all over the country, but also from around the world. And that's particularly appropriate because, needless to say, the impact of our election will extend far beyond our borders. I really look forward to our discussion today and to your questions.

Today is the fifth in Tax Analysts’ new series of public discussions that we call “Taxing Issues.” We launched this series as part of our 50th anniversary celebrations and through it we're bringing the tax community together for bipartisan discussions about the future of tax policy with leading policymakers and experts.

As I've mentioned in previous events, this series will address not just federal tax issues, but state and international tax issues as well. We anticipate that our next webinar will focus on the international side of things. So, stay tuned for more details on that. With COVID-19 continuing to threaten the health of Americans from coast to coast, we will continue to hold these discussions in a virtual format for the foreseeable future, but we welcome your feedback on how we can make these discussions more interactive. You can send any feedback to events@taxanalysts.org. And now on to the topic at hand.

As I noted, the election, which is already underway in many states across the country, will prove important for the future of tax policy. The economy continues to struggle, and the next presidential term may very well begin with an additional round of economic stimulus measures. Meanwhile, large parts of the 2017the TCJA — are approaching their expiration date. Then policymakers will have to decide whether to extend them or let them expire. President Trump is touting the success of the TCJA in fueling the strong economy that America was enjoying before COVID-19. The administration has talked about a tax cuts, 2.0 package to usher in another period of economic growth and to help bring the economy out of its COVID-driven downturn.

The president would likely interpret a reelection victory as a ringing endorsement of the TCJA and his win could serve as an impetus for making some of the laws temporary corporate provisions and all of its individual provisions permanent. The president and Congress might also decide to repeal some of the tax increases that are scheduled to take effect in coming year, such as rate increases for BEAT [base erosion and antiabuse tax] and GILTI [global intangible low-taxed income].

But the Democratic nominee — former Vice President Joe Biden — has a much different and detailed tax platform that he says will better position the economy for the long term. His plan is arguably the most progressive of any democratic nominee in recent times. And he would obviously view his victory as a mandate for change. Biden has proposed raising the corporate tax rate to 28 percent, imposing a minimum corporate tax on book profits, and phasing out the section 199A passthrough deduction for qualified business income. He would impose additional restrictions on offshoring, such as restructuring GILTI as a global minimum tax on all earnings on a country-by-country basis. He also suggests he would implement strong anti-inversion rules and take a hard line against moving jobs overseas. In addition, Biden has proposed to raise income capital gains and payroll taxes on individuals making over $400,000 a year. Notably, he would raise the top income tax rate to 39.6 percent — reversing the TCJA.

But would either candidate get his way if he were elected? That depends on Congress. Democrats are projected to retain control of the House, and they have a shot at retaking the Senate. But neither party will control 60 seats in the Senate. So, unless the party of power plans to eliminate the filibuster, negotiations over tax legislation will be necessary no matter who occupies the White House. So, to help us sort all of this out, we have two outstanding speakers, and I will introduce them in the order in which they will speak. I've asked each of them to speak for five to seven minutes and when they have finished, I'll begin our moderated discussion with a question or two. As I noted at the outset, we welcome your questions. Thank you to those who've already emailed questions in advance. During today's event, please use the chat feature to submit questions, and I will get to as many of them as time permits.

We'll hear first from Jon Talisman, founder and managing partner of Capitol Tax Partners. Jon served as assistant treasury secretary for tax policy in the Clinton administration, and he has strong ties on the Hill having served as chief democratic tax counsel for the Senate Finance Committee and legislative counsel for the Joint Committee on Taxation. We'll hear next from Mark Prater, managing director in the tax policy services group with PwC. Before joining PwC, Mark served as chief tax counsel and later a deputy staff director for the Republican staff of the Senate Finance Committee. I look forward to our discussion today. And with that, Jon, I turn it over to you.

Jonathan Talisman: Okay, thanks Cara. And thanks to Tax Notes and Larry Haas for inviting me to speak today to the Tax Notes audience. I'm really pleased to be here, and I hope everyone out in the audience is staying safe and sane during this difficult time. I'm honored to be on the panel today with my good friend, Mark Prater. Mark and I have known each other for roughly 30 years, when we both served on the tax writing committees together, and we are living proof that both parties can work together in harmony and relative collegiality. Mark has — to those of you who know him — Mark has an encyclopedic recall of events, issues, and deliberations. It's always disconcerting when Mark recalls a conversation he and I had a couple decades ago and I have no recollection of it at all. This trait has served Mark well and it will be interesting for the audience to hear as past is often prologue, and what we're talking about can educate what's gonna happen.

So, when people ask me what is going to happen, and we're going to talk through a bunch of scenarios later, I say — and this is mostly focused on if Vice President Biden were to win the election — is there are five questions that need to be answered before I can answer your question as to what's going to happen. So, the first is what is the state of the economy in January? And we'll go through that a little bit. What remains left undone is the second question. So, if they still haven't done a COVID relief package, which the [House] Speaker [Nancy Pelosi, D-Cal.] and [Treasury] Secretary [Steven] Mnuchin are having ongoing conversations, but certainly it looks less than likely that they're going to get a deal, albeit the conversations are still ongoing. That will be something that's either leftover for a lame duck or for the next president to resolve once he takes office.

Obviously, you also have the critical issue for a lot of businesses about extenders and then the technical corrections from the Tax Cuts and Jobs Act. So, those two extenders and technicals will probably have to wait until there's a COVID relief package because they're not going to move something that's business focused before they do something that's COVID-relief focused.

The third question is what is the makeup of the Senate? And when will we know that? The narrow margins, as Cara alluded to, make tax legislation, particularly tax increases, very difficult. And as Mark will tell you and knows firsthand, the Tax Cuts and Jobs Act, even though they were spending $1.5 trillion, which at the time was a lot of money, it seems like not a lot of money after CARES [Coronavirus Aid, Relief, and Economic Security Act]. But it was a lot of money at the time, was really difficult, and only succeeded after healthcare failed. It was essentially an existential threat to the Republican Party, and it was something they had to get done. And that's why Mark lost a couple of years of his life in two months.

The fourth issue is what other pressing priorities will take center stage? Healthcare, immigration are issues that are also critical campaign issues for Joe Biden, and certainly could be front and center, especially if there is a feeling that the ACA [Affordable Care Act] needs to be buttressed because of the Supreme Court situation. So, that's another thing that will take part of the honeymoon period potentially and could cause other things to be moved to the back burner.

And finally, who are the key personnel in the positions that matter? So, the treasury secretary, the NEC [National Economic Council] director, the OMB [Office of Management and Budget] chief, the chief of staff of the White House, and then finally my old position and certainly of lesser importance, but still important, the assistant secretary for tax policy. All of those people will have views as to what should get done and how they should get done. And that has a big effect on the campaign, on campaign promises, et cetera, and what gets done.

So, I'm gonna real quickly just talk about a couple of additional items that just to keep in mind as we move forward because they'll help inform what Mark and I are talking about. The first is the 2022 election cycle. Other Republicans are defending 22 seats of 34 in 2022, the D seats are generally considered safe. It seems like there's probably about three competitive races, at least as people are, are looking at it now. The Republicans have six competitive races and you also have a couple of key senators retiring from the Finance Committee — [Richard] Burr [R-N.C.] and [Patrick J.] Toomey [R-Pa.] are retiring. So, all of that will matter as we move forward.

Another major point is campaign proposals are important, but they often get either modified or sublimated by other events. We like to call those events in our office, unforeseen occurrences, or UFOs. And, um, what you see is that — take ObamaPresident Obama had a lot of proposals during the campaign, and then obviously we had the financial crisis and a lot of his things got put on the back burner because he had to do the recovery act. Now he was able to get some of his campaign promises finished during the recovery act [American Recovery and Reinvestment Act of 2009] — the make work pay credit was done, at least on a temporary basis, but things like raising taxes on wealthy people were deferred until the fiscal cliff negotiations in 2012. So, you're really talking a four-year period before that campaign proposal came up.

And then the last thing I'll raise, just because it's interesting and probably not something that most of you outside the Beltway have focused on, is the debt limit expires in middle of this year, upcoming year. And the debt limit is obviously a critical and difficult task in any situation, but certainly it will be one that's probably even more critical with the deficits that we're running as a result of COVID to see how people react to it. So the question that Mark and I will at least attempt to answer is when will deficits matter again, uh, because we're certainly going to be in a situation where they will matter at some point in the future. So, I'll throw it over to Mark at this point.

Mark Prater: Thank you Cara and Jon. A pleasure to be here this afternoon. I want to thank Tax Notes for inviting me to join Jon today. Jon's kind words are very much appreciated. I think he's spot on, on one thing that is always a factor in making the machinery of policy and government move and that's relationships, trust, confidence in conversations that are critical. The Capitol Hill is like a small town, and there are folks that play different roles, but Jon and I had — and have had — for a long time as he said 30, almost 30 years, a solid relationship. We could, we can treat conversations in whatever form we needed to — they could be formal, informal, off-the-record, on-the-record, whatever.

And one of my favorite events in the period when he was assistant secretary or acting assistant secretary was our Sunday morning breakfast where we would catch up on everything from sports to the matters that were coming up — Treasury matters and legislative matters. And we would, we really tried to be helpful to each other, and I think we were. And that is, I think when you look back at that period tax policy worked pretty, pretty well — the system worked pretty well. It wasn't perfect, but a lot of that was the, the quality of the relationships with the key folks involved. And obviously the members, his boss was [Treasury] Secretary [Robert] Rubin and Secretary [Lawrence] Summers. And my boss was, at that time, [Senate Finance Committee] Chairman [William] Roth, and the other members that, to the degree the committee was acting on something.

So let's, let's kind of go through, I think Jon outlined the key questions very well. The first part is the state of the economy. That is really a key variable because if, if the first quarter is still a situation where you have prospects for tepid growth, it will focus the minds of the key players. No matter the outcome, if you have a status quo election outcome — and I identify that as a situation where you still have divided government, and it could be one of two forms, you could either have a Republican Senate — and that's one of the questions Jon raised — whether what's the Senate situation. Or you could have possibly President Trump being reelected. So that's one set of scenarios — 1A and B. And then the second set is a Democratic sweep. And Jon and I had been through all of those before we played different roles on that. Sometimes we've been on one side — that's been the sweeping side — and the others, the swept side. You know, it all, it all affects a kind of the posture. But the one thing we do know is that no matter what the election results are, there will be a factor there of the state of the economy. It seems that we have an economic recovery that's occurring — that is recurring faster than probably conventionally would occur for this kind of deep recession, but it's not an even recovery. It's not an even recovery across demographics or sectors. And there seem to be pockets of the economy, say midsize businesses, sectors that you'd expect to be hit, travel, tourism, all of those that have been hit really hard. And so all policymakers will have to focus on those things. They'll have to focus on all of the policy tools they have and taxes is one set of those policies.

So I, I think that's, I agree with Jon, that is really the first question, the primary question, and will to a great degree shape what happens in terms of the order of the events. When you look at the other questions, when we're looking at a question of what's the composition of the Senate, or what's left over, those are also relevant too. The Senate, as a creature of the Senate I perhaps have a certain bias. Jon has the objective background of having served on the joint committee too. So he served there and in the Treasury Department — I'm solely in the creature of the Senate, so it's natural for me to think of the Senate as a, as a critical place, but it really is, because of the rules and the processes — and Jon and I'll get into that here shortly — but one of the things, if you have a Senate, and you have undone business, Jon mentioned that undone business.

One thing we do not know is what the disposition of the elections will be at this point. And we may not know in the Senate until as late as January 5th. And the reason for that is under Georgia law there is a jungle primary that's underway. Senator [Kelly] Loeffler [R-Ga.] is the incumbent there, there's a jungle primary, which may, which will likely produce a runoff that will not be decided until January 5th. And the other Georgia seat, the incumbent is Senator [David] Perdue [R-Ga.], and if Senator Perdue doesn't achieve, or his opponent does not achieve, a majority, then that goes to runoff under Georgia law. So we may not know when lame duck arrives, who controls the Senate. That's just something we'll have to see, but what will influence, kind of the, the playing field will be, kind of what, what the, what the outcome is in terms of the leadership tax, writing committees, et cetera, and, this unfinished business. And there is a lot of it. Jon talked, Jon briefly touched on it.

Again, going to this first question in the state of the economy and how policymakers respond. There's been, the House has put out a very comprehensive proposal. The Senate has responded. Senate Republicans have responded with a less deficit impacting proposal, but also comprehensive, you know, there is a possibility that those could get worked out. But that's going to depend on, to a certain degree, the elections and the state of the economy at that point.

The fourth one, when we're talking about these features of, you know, how we look at personnel and other questions, those are going to be more questions for the start of the new, the new Congress. So, and Jon and I, again, experienced these things on a — he has more objectivity because he experienced them from the Treasury Department side and the committee side — but personnel are really important. Jon mentioned, the secretary, secretary is, you know, is the leader of the Treasury Department — largely puts a team together of sub-cabinet officials like the position Jon served, and others. And the secretary also usually is the primary spokesperson for the administration when we face our trading partners. So, in things like the G-7s and the G-20s, where a lot of tax issues are in play, you know, the treasury secretary is a very important person in those discussions. The secretary also is important on the policy direction the treasury department goes in terms of regulations. So currently regulations and process and regulations that would come into play. The secretary will be important, and the secretary will set the tone for those priorities in terms of the people that the secretary picks for those sub cabinet positions. They also have to go through the confirmation process, which in the Treasury Department, most of those nominees come through our old committee, the Finance Committee, and the Finance Committee has a very vigorous vetting process — probably the most vigorous of the committees in the Senate in terms of looking at financial data, background, et cetera. It's, it's very thorough. So, standing up a government is an important feature here. It's not like January 20th at noon, you know, if it's former Vice President Biden becomes President Biden, then he doesn't stand up a government right away. It has to get the people through, and so that takes some time.

Jon also commented on, um, the process and legislative process, some, and we'll get into that some, but let me just kind of introduce some topics on that. So, the Senate rules, again, the Senate is, it was kind of an important place here because the House is largely a majority function body. When a majority in the House decides they're going to move legislation, they have a rules committee that, that sets in place, the terms and conditions of debate and processing. The Senate is not that way. In the Senate you have a regular order process, which contemplates a lot of rights for members to amend and debate. Uh, you have reconciliation, which is an exception to that process. And we'll talk a little bit more about that, but reconciliation is kind of has, has its pros and cons for legislators.

I think people from the outside that aren't Senate geeks tend to think of it like, “okay, this is the way the majority gets something done.” And that's true in the sense that it, it necessitates a majority vote, but it comes with lots of costs. And I'll just briefly outline those costs. One is it's limited by the Byrd rule, which is a budget act rule that basically protects the rights of a minority. And it may not even be a partisan minority. It could be a regional minority or a single senator to protect that senator. So, the Byrd rule is something that, that has an effect on legislation, and there are a number of features of it. The second thing to think about in reconciliation is because it is a numbers driven — it's driven by a [unintelligible] number, the policy. And this has been my experience under both Democrats and Republicans tends to get back backed into that net number. And so you see that with TCJA, you see that to a certain degree with the ACA, you saw that with [Economic Growth and Tax Relief Reconciliation Act] back in 2001, you saw it with [Omnibus Budget Reconciliation Act] in 1993, they are, they all have those features. So it does affect some of the fiscal path and the substance of the legislation.

The process is also really important because it's not always partisan. I think you can look back in a bill Jon and I were very involved in back in 1997, you had a reelected President, Clinton, who made gestures to the Republican majority and the leadership, and they crafted a deal and really a bipartisan deal that was processed through reconciliation in 1997. So, it doesn't necessarily have to be partisan, but it usually is, and that means a majority ends up owning the whole product, all of it.

Talisman: And Mark, if I can just real quickly, there's two aspects of, of reconciliation that will be important with respect to a Biden agenda. One is you under the Byrd rule, you can't increase the deficit beyond the budget window, which is a critical issue.

Prater: Right.

Talisman: And then secondly — and we'll get into this probably a little bit more — but with the Social Security payroll tax issue, you cannot impact changes that affect the Social Security trust fund. And so you wouldn't be able to do that proposal through reconciliation, most likely, which means that he would have to put that off into a bill that, again, is most likely to attract 60 votes or, or again, as Cara referenced, the elimination of the filibuster, those would be the two choices there.

Prater: That's right. Jon and the remedies under those two different points of order are different. Most post-Byrd-rule violations mean if the proponent of the point of order prevails, the provision drops. In the case of the Social Security Act point of order, we always called it the bomb because if, if the proponent prevails and there's not 60 to waive, the bill loses its reconciliation protection. So, it, it destroys basically the unique status of the bill.

So, and then Jon also commented on the election cycle. I agree with his comments again, the playing field is tilted somewhat to Democrats there, as far more Republicans are defending seats in very competitive districts. There are some, as Jon said, some competitive Democratic states, but it's, it's a playing field that tilts to Senate, Senate Democrats. So that could influence things. And then unexpected, or he said, he talked about UFOs, those are always a factor. And then the debt limit is a factor as well. Again, if you, it's harder even to suspend the debt limit, which is kind of the default process that we’ve fallen into on a partisan basis.

I want to say one more thing. And then, uh, and that's that I think if you have a Democratic sweep, former vice president is a creature of the Senate — even more than I am. He served 44 years in the Senate when you combine his Senate service and his, um, vice presidency. And so, that may provide some opportunities. And I will just say again on reconciliation, it's a hard thing because you own it, if it's part of [unintelligible] and you have to deal with a lot of that consequences of it. I could see, you know, if the opportunity arose, perhaps if former Vice President becomes President Biden, he could reach out and if he finds a regular order, super majority stimulus bill say upfront, it can take care of COVID and some healthcare related issues, that would be, you know, he doesn't have to deal with all this, all these limitations with reconciliation, and then he could hold a reconciliation instruction for things that may be more pure Democratic issues, where the caucus wants more unity and you might not find Republican support.

So what Jon talked about, the order of issues is really important, what becomes a priority and how taxes fit into that. And also kind of the, the grouping of the issues. I really do see an opportunity here for a stimulus and infrastructure, some healthcare-related things, those are going to be probably bipartisan issues. And you see the Congress with CARES did a record amount of deficit spending, but both sides were involved, so the political consequences allowed that unique, and I think largely needed, action to occur. So, um, anyway, my only point is the vice president, the former vice president is a creature in the Senate and, and knows the place, knows the people, knows a lot of the people. So that, that is there, President Trump, as Jon said, or as you said, Cara, you know, will probably be articulating a continuation of the tax policy that he's put in place, but we'll also have to deal with these other issues that we've talked about open responses and, and they're similar matters.

Griffith: Yeah. It seems like the state of the economy is, is critically important and that is going to drive at least the initial, the initial period, of either presidency. So, if I can get the two of you kind of talking about that and looking at, so what might we see in a stimulus bill? How likely is it that we would get something? It seems unlikely that we're going to get anything in lame duck, but what might we get in a stimulus bill under either a Trump or a Biden presidency?

And then the second question to that is how are we going to pay for it? We, you know, this is, this is a lot of money to be spent time after time after time. And so, while I do think there is bipartisan supportive of a stimulus bill in particular likely of infrastructure as well, how are we going to start paying for these things, you know? And Mark for you, if you could address at some point, if we're gonna look at, if we have a President Trump, and we're going to roll back some of the expiring provisions in the TCJA, we're gonna keep some, how are we going to start paying for that? There's no real pay-fors that seem to be included in that.

Prater: Yeah, I think Cara, it's an entirely appropriate question. I think the answer to that is, there’ll have to be considerations of that in the context of all the other priorities, uh, the budget will have to work. And we know we at a minimum will have divided government, is likely if President Trump is reelected. So, House Democrats will have a say and you can't make a law without them. And the House Democrats have a significant fiscal hawk portion of their caucus just as Republicans have a significant fiscal hawk portion in their conference. So, I think there's enough interest there.

I will just tell you that politicians are rational actors, and they respond to signals from their marketplace, which is the economic marketplace and the, uh, and the political marketplace. I remember in my service on the Joint Select Committee on Deficit Reduction, my deputy and I addressed a bipartisan chiefs of staff dinner. It was a regular occurrence, recuring event. And I had, I had one member, one chief of a well-known senator — I won't say who it was or who the senator was — but the person raised the question on the entitlement side. “Well, wait a minute, you guys are saying, we should look at some changes here on Medicare, on age or whatever.” And we're looking at these things and he says, “My boss wants to expand these things!” So, and, and this person accurately made the point that, you know —and this was a few weeks after we had had the debt limit showdown — which thankfully was mitigated by [Senate Majority] Leader [Mitch] McConnell [R-Ky.] and then-Vice President Biden in an agreement. And so, this person's point was interest rates have actually dropped since that point, and so the marketplace isn't telling me my boss, that, you know, we need to go to austerity.

So, I think they all know it. I think they could see the numbers — they know there's a reckoning. But to a certain extent they are rational political actors in the sense that they respond to the mix of signals that's presently before them. Uh, I do think back to the days when Jon and I were working together, you know, he was in the Treasury Department, I was in the Senate, and the Senate and the House took some pretty bold actions on deficit reduction measures. But you had a group of members, a bipartisan group who were very invested in the issue. Bob Kerrey was one from Nebraska, Judd Gregg from New Hampshire, a bunch of them — Kent Conrad — a lot of senators who made that their number one priority, that was their North star, was the deficit. In this political environment there are still folks with that view — there, there are not as many of them. So, I think you, you got to look at them responding to those. As I said, they're rational political actors. They will respond to signals.

Talisman: Cara, it may make sense to put up this slide now, if that's okay, for everybody to see. You know, and I agree with Mark, I think Cara, thanks for the question, that really, um, as the Federal Reserve said, the path of the economy is going to depend on the path of the virus, right? And if we're not coming out of the virus in the spring, you're going to see a lot of action, legislative action. And it goes to what I was talking about earlier too, which is, if we haven't done a COVID relief package, that's going to be the first priority. And then the question is, what can you combine with it? And can you get 60 votes for a COVID relief package with infrastructure because that'll help stimulate the economy as well, with or without, pay-fors? And if you include pay-fors, obviously if the pay-fors are highly partisan and consistent with your campaign, you obviously diminish your chance of getting 60 votes, which means then you've got to do it through the reconciliation route, which makes it more difficult to do COVID relief quickly, which is going to be their first order of priority because you need a budget resolution, or you need to waive the filibuster. We are in a situation right now where, you know, we lost 22 million jobs at the start of the year. We've covered about half of those, which is good, but that job loss is still greater than what we lost in the 2008 recession. And the deficits, as you show on that chart, are running at 16 percent of GDP, which is unheard of. You see what the deficits were on that chart previously.

Pandemic recession and costs of relief efforts increase challenges for sustaining current 2017 Act policies

So, we're going to have to figure out a way ultimately to pay for things. I don't expect that to be early in either administration, because I think they're going to be more concerned about stimulating the economy than they are about paying for things, but we've been sort of joking that whichever side loses the election will all of a sudden be concerned about deficits in the context of debt limit when that comes up. And we'll hold the other's feet to the fire a little bit with respect to deficits and debt limit. But I think that's a second order if we're still in crisis, which it appears like we're likely to be. I think it's very highly unlikely that we're going to be paying for much in the context of, of that bill. Now, that being said, ’cause I know I'll get asked the question you can, if you decide your number, Mark talked about net numbers. If you decide your net number is $2 trillion that you need to spend to stimulate the economy, you can raise $500 billion and then spend $2.5 trillion and you end up with $2 trillion net. So, there may be offsets buried in this bill. Again, that goes to the issue of whether they're trying to do this through a partisan or bipartisan approach though. So, I'll stop there, I guess.

Prater: Yeah, I, I think that's right. It’s, I have kind of a joke about reconciliation that the supply of offsets to reach that net number that Jon just referenced is always much smaller than the size of demand, in terms of spending and tax relief. So that's another difficulty of reconciliation, frankly, is that, um, the folks moving the bill have to manage those two points and normally the political marketplace in the Senate and the House determines where that line is in terms of the gross versus the net. But that throws on the board a lot of other factors. I do think that members are conscious of the deficit path, and especially when you look at what we call the primary deficit versus the other depths. The primary deficit is basically policy effects and impacts not withstanding interest debt service. And when you look at the outlying years, the debt service factor really becomes pretty incredible, even at conservative, small C conservative, interest rate assumptions. So, I think the more focused that comes upon that, the better, because I think folks will realize there's a huge trade off on — further — less attention to deficits. You do pay in terms of the dwarfing of the primary deficit by the total deficit.

Talisman: Again, our low interest rates help mask the size of our deficits. But the question is how long will that continue if we continue to run those deficits? And as Mark said, that will be the market driven factor that drives the members at some point.

Griffith: Yeah, I think that's undoubtedly right. And probably it is later than sooner that we will be arguing those, but just to, let's take, let's take COVID and stimulus and put it aside for just a second. I think we could probably talk for hours on what should be in a stimulus bill, what might be in a stimulus bill, and how are we going to pay for it? So, but I did want to get to a few questions on some, some of the fundamental tax plans that we have right now. We have Vice President Biden has put forth a lot of concepts that are worthy of consideration. That's why I just wanted to get to a few of those. You know, when you look at his proposal it’s a pretty significant tax increase and that taking COVID aside to certain extent, because there's a level of saying that we are we're recovering right now. And so, we are going to need stimulus. We need things that help the economy. Is now the right time to be considering a large tax increase? And Jon, I'll throw that to you.

Talisman: I get all the softballs.

Griffith: Yeah. That's what I thought [unintelligible] and your way.

Prater: Have at it, Jon.

Talisman: Yeah. I think, I think your question is a good one, but as I pointed out, I think it's a question of whether you can do on a net basis more than you can do on a — uh, I'm sorry — on a gross basis, more than you would do on a net basis. And so there may be offsets included in a package where he is spending a significant amount of money either through spending or tax cuts in order to help stimulate the economy. So, if the net number again is two-and-a-half trillion and you raise $500 billion, you can, you can basically then spend $3 trillion to get there. So, I also think there are things you can do to ameliorate, and this goes to the question of effective dates. If you're worried about stimulating the economy, you may defer effective dates for provisions until you think you're going to be passed, but because you've got a limited honeymoon period, you may still put them into law.

Obviously you can also do things like phase-ins or phase-outs that help ameliorate some of that effect. And then, the other question I think is just whether — you know — from a democratic standpoint, and certainly the history of some of these key players that will be advising a Biden administration, fiscal discipline has been good for the economy over the course of time. So, there are going to be people who actually believe that that's an important feature of anything that they do. And so, they're going to be focused on the fiscal discipline, not necessarily slowing down the economy in the long run. There are people obviously who are going to be advising Biden from the Clinton era and also people from the Obama era and feel like they helped get deficits under control as well. And so that's gotta be a feature. When that kicks in, I don't know, but it certainly will be a feature of their belief.

The last, the last point, I think Cara, just to fit it in here is the Democrats — like the Republicans after 2008 — the Democrats did not play on Tax Cuts and Jobs Act. And from their standpoint, they were in the game on tax reform. They were supportive of tax reform, but on a deficit-neutral basis. And so that $1.5 trillion that was spent on tax reform is something that I think will be, from their standpoint, something that they'll want to revisit. There was another feature of that is important as well, which Mark and I talked about earlier, which is the Democrats wanted, as part of being involved in international tax reform, they wanted the money for infrastructure and the deemed repatriation money was part of an infrastructure package that they wanted. So, I think that was something that they didn't get. And so obviously revisiting some of those decisions in the context of an infrastructure package is something that they may view as fitting into the mix. So, I’ll stop there.

Griffith: And I was gonna switch to a question on TCJA for Mark first, but let's talk about infrastructure for a second. You know, and I open this to both of you. There seems like there is bipartisan support for some kind of infrastructure spend, and yet we haven't really accomplished much in recent years. So, do either of you have any level of confidence that we could get an infrastructure bill passed? And what might it include?

Prater: Yeah, I think, um, I start off Cara with whoever is president will likely be forward leaning on that — whether it's Trump or a former Vice President Biden. They have both made infrastructure a, a big issue. It, in my experience — having worked on many highway bills and aviation bills and others — once you kind of get the momentum of the authorizers on a path to a multi-year authorization, and you had that in the Senate with a bill that came out of the environment and public works committee, not this last year, the year before, without dissent, that basically ramped up the baseline and the Highway Trust Fund and transit spending, um, by the tune of, I want to say 70, I have it in my head, $70 billion. I didn't review that. But it, and if you go back to the last multi-year reauthorization bill that was done back in ’15, that bill ramped up the baseline on spending.

So it's one of those things where you have kind of an instant bipartisan interest. Now folks may define it, may define infrastructure a little differently, but there's gonna be a lot of overlap on it. Members, just kind of intuitively get that the U.S. is still in a kind of catch-up position on a lot of infrastructure. I, for one was a bit of a skeptic on the aviation one on NextGen, which our sister committee, the commerce committee, were very thrilled about. And we, we provided some kind of changes on the reauthorization for aviation back in, this was in ’12. And you know what? Look at what happened. NextGen largely worked. The traffic in airports became much more manageable; flights, much more on time; much more handling of a capacity of travel. Certainly, that mattered. And you start off with that on infrastructure. There may be disagreements about the scope of infrastructure. Democrats may take as maybe a little wider view of it than Republicans, but there is a lot of commonality there. And it's jobs. There, you know, there's definitely a jobs connection to that. I think intuitively and through the data and that's, that's helpful.

So, I think infrastructure is a place where they can go. I mean, you already had like I say the footprint of the key authorizing committee acting in this Congress, early, I guess it was in the summer of the first session. So, you have that already. You have John Barrasso [R-Wy.] is chairman and he is a conservative, but he is very much pro authorization. You have Peter DeFazio [D-Ore.] as chairman over in, from my home state, Oregon, as chairman, over there in the House. And he has spent a lot of time on this. So, I think, look, after the election, to me, that's a profitable place for members on both sides to go, and we have mechanisms, you know, we have, the trust funds are in the Internal Revenue Code. [Unintelligble] is really the Internal Revenue Code. So, it's always one of these things where the tax writers and the authorizing committees kind of collaborate on the policy. So it, I think it's a natural place, no matter what the election outcome is.

Talisman: Cara, just to throw in. Obviously it's really important to Chairman [Richard E.] Neal [D-Mass.]. It's been important to Secretary Mnuchin as well. The house, as Mark discussed, DeFazio, they passed a $1.5 trillion bill — a comprehensive infrastructure bill. I do think the table's set. I think it would be a missed opportunity if they didn't do it because interest rates are low and infrastructure, I think people realize our crumbling infrastructure is something that actually does need to be upgraded in a whole bunch of areas. From the tax standpoint, it's really not, it's not necessarily a tax driven bill, obviously more of it's going to be on the spending side than on the tax side, but there are features that are tax provisions, like the bond provisions and the financing provisions, and then maybe potentially some of the revenue offsets as well, if they decide that they're going to do revenue offsets. So, I do think it's an area that certainly there's common ground. And if you're looking for a way to get to 60, along with COVID relief, it's certainly a way to marry the two and try and get that across the finish line. Cause there's enough common ground there to do it. And certainly just to harken back there were there, there was significant infrastructure, albeit not on the scale we're talking about here, done as part of the recovery act, which was, you know, obviously done early on to stimulate the economy. So, I'd hearkened back to that a little bit as well.

Griffith: So, if I can, we would be remiss if we didn't at least address some of the TCJA. And so Mark, I'll start with you if we, if we end up, um, having President Trump, reelected, what's the future of the TCJA under President Trump. And then if we have a President Biden, the same question for you, Jon.

Prater: So, I'll start with Trump. To me it seems like President Trump has kind of three themes, right? One theme is to continue the path on TCJA, so clearly dealing with the sunset of the individual provisions. The other thing is you get some mixed signals from the administration on this. For instance, the White House, I think, is bullish on dealing with the delta that we talked about earlier, uh, between current law and current policy. But the Treasury Department is also mindful of some of the deficit impact that we talked about on that. So, they'll have to work that out, but I, but, and that's shown in the budgets that they put forward. So, I think continuation there, I do think to make law, they’re going to have to find a way to meet and address the priorities that House Democrats have put forward. As Jon said, they weren't, they weren't in the room on the discussion. They weren't part of it. It was a partisan process. So, I think a Democratic position as I see it is, “Well, wait a minute, we're not going to just address some of these design issues from the perspective of the product as is, we're going to, we want a broader playing field and we want to look at they're more on the internet income credit. We want to look at more on the refundable child credit. We want to look at some other features, the legislation or on the individual side, and then we want to revisit on the business provisions and on the offset side.” There's over a trillion in business offsets and TCJA and the corporate rate is sitting there. My sense is the administration, and if Senate Republicans are in the majority, or if it's a regular order process, we'll resist significantly ramping up the rate or features of the offsets.

But, you know, part of this is when you want to legislate, you have to consider what the other side needs and what they want. And so I could see the president kind of laying out, you know, his agenda based on TCJA, fixing some of these issues, perhaps dealing with the sunset, and then he has other new starts that kind of like some similar and intent to the former vice president in terms of incentives for onshoring, and other policy initiatives.

And then the one thing that I do think the president at least in the last few weeks has created some controversy among Republicans is the idea of, you know, in effect, dealing with a payroll tax cut without a bigger picture of what the future of Social Security, and the linkage between the payroll tax and the benefits are. That ran into some opposition among both Democrats and Republicans. So, I don't know whether he, you know, comes back to that and you can do, you can get to the same result through the income tax system. Ironically, you could probably help a lot of the same group of taxpayers with changes to the earned income credit. You could probably reward people more for work at some of the pressure points inside the structure of the EITC [earned income tax credit]. So, you know, again, it goes back to real discussions. If he's reelected again, likely to have a Democratic House, probably more likely if he's reelected to have a Republican Senate, but probably a very narrow majority Republican Senate. And it may be a Democratic Senate who just don't know. So, to make law, they're going to have to have a bigger discussion.

Talisman: You want me to answer that from a Democratic perspective?

Griffith: I would if you would like to venture an answer.

Talisman: Okay, well, I'm obviously I've discussed that they're likely to revisit some of the Tax Cuts and Jobs Act that will depend as we've, as Mark just alluded to, is the makeup of the Senate. If the Senate flips, but they're very narrow margins, that's gonna make it more difficult to revisit some of those issues. But the issues that they would focus on, I think as a first order would be the individual rate cuts. I think the, they may want to revisit the SALT [state and local tax] deduction issue, which they could marry with the rate increase from a distributional standpoint. And then the corporate rate increase, sorry, decrease in TCJA they may want to increase that as, as you know, he said, he's going to take it up to 28 percent, depending on who you talk to. There's a lot of feeling that it will only go up to as high as 25 percent, because when you add the state tax rate to it, you start getting out of balance if you go higher than 25 percent with the OECD. But their view is, is that 25 percent was the number that the Republicans originally were focused on prior to TCJA on a deficit neutral basis with Dave Camp’s bill. And so that may be an appropriate place to land as well.

As far as individuals, just to make it clear: I think the president, uh, Vice President Biden has said that he would limit the increases only to people making over $400,000. I know there's been some confusion because of some of the campaign, but, he's been, he's been pretty clear on that. And then lastly I guess estate and gifts, from an estate and gift standpoint, I think that he would look at that because he's going to be looking at income inequality, and that's certainly a response that he can offer that's relatively straight forward that responds to some of the progressive concern over wealth taxes and some of the other things that were on the table during the campaign. So, I think estate and gift is probably the easiest way for him to address that. I don't think they'll ultimately go back to the levels that he's talking about.

One story real quickly, the House last year was considering a pay-for for the CTC and the EITC. And they were considering rolling back the sunset of the estate and gift proposals from 2025 to 2023 — seemed like a pretty straightforward offset. And yet they couldn't get it through their caucus because of the people who were frontliners were concerned about it. So I think that's an issue, you know, we think estate and gift tax is easy for Democratic members, but it's not that easy and tax increases, you know, tax increases are much harder than tax decreases. So, I hearkened back to the 1.5 percent that Mark, I'm sorry, the $1.5 trillion that Mark had to spend on tax reform. And even that was difficult. So, trying to raise money on people generally is much more difficult.

Griffith: Without a doubt. Well, I think we could probably keep going for a lot longer, but our, our hour is up. So, I want to thank you both so much for sharing your time and your insights, and I look forward to the next webinar. Thanks so much. Have a great day.

Talisman: Thanks Cara. Bye-bye.

Prater: Thanks. Bye.

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