Sen. Crapo is all in on tax reform

Idaho Sen. Mike Crapo has been taking heat from critics lately who say his support for the $1.5 trillion Senate tax reform bill is inconsistent with his past concerns over increasing the national debt.

The state's senior senator, though, said his decision to vote for the bill is a direct response to those concerns, rather than a departure from them.

"This is very consistent with the position I've taken in the past," he said during a 30-minute telephone interview Thursday. "One of the points I've always made is that we have to reform our tax code and make America more competitive. We're finally achieving a key piece of the fiscal reforms we need, and I believe it's going to generate significant economic growth."

Various analyses have suggested that the House and Senate tax reform plans would benefit corporations and wealthy Americans more than low- or middle-class income groups - a conclusion Crapo rejects.

The most common criticism, though, is that they'll add to the already untenable $20 trillion national debt.

The Congressional Budget Office, for example, estimates that either proposal would add about $1.7 trillion to the national debt over the next 10 years - on top of the $10 trillion increase already projected under current law. The Joint Committee on Taxation puts the number closer to $1.45 trillion.

Crapo, by contrast, thinks the final reform bill will be revenue neutral at a minimum, and may actually generate more tax collections than under current law.

"This bill will not only stimulate economic growth and provide tax relief for every income category, it will also, I'm confident, generate more revenue than current law," he said.

Crapo cites several major flaws with the reform bill cost estimates, starting with their baseline revenue projections.

The Congressional Budget Office, for example, begins its analysis by estimating how much tax revenue would be collected under current law. It then compares this "baseline" revenue with the amount that would be collected if the reform bill passes. The difference between the two numbers is the $1.7 trillion.

Crapo, though, noted that the federal tax code includes a multitude of tax breaks that, under current law, are supposed to expire. Together, these provisions add up to about $500 billion over 10 years.

Because the Congressional Budget Office baseline figure reflects current law, it assumes those tax breaks will expire and the government will collect the $500 billion. In reality, though, Congress extends the tax breaks annually - meaning the CBO baseline is artificially high. It should be $500 billion lower.

Using the more realistic baseline, Crapo said, would eliminate about a third of the cost of the reform bill. That doesn't mean the government would collect more tax revenue; it just means the reform bill wouldn't dig the fiscal hole quite as deep as the CBO projects.

A second flaw with the CBO analysis, Crapo said, is that it's based on "static" scoring: It doesn't take into account any economic activity that would be stimulated by the reform bill, or reflect the resulting increase in tax collections.

"Dynamic" scoring, which does consider such economic effects, trims the projected deficit by another $400 billion, he said. That's based on a recent analysis by the Joint Committee on Taxation, which concluded the Senate tax reform bill would boost U.S. gross domestic product by about 0.8 percent over the next decade, or 0.08 percent per year.

Finally, Crapo noted that the reform bill lowers the corporate tax rate from 35 percent to 20 percent. There is a "strong expectation" that the lower rate will attract additional foreign investment, he said, and reverse the trend of U.S. companies moving their headquarters overseas - further strengthening the economy and boosting tax collections.

"It makes America one of the most competitive countries in the world for investing, whereas right now we're one of the least competitive," Crapo said.

Others aren't quite so confident about the bill's beneficial fiscal effects, however.

In a recent op-ed piece, for example, former Wyoming Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles, the co-chairs of the National Commission on Fiscal Responsibility and Reform, chastised Congress for failing to make hard choices, saying lawmakers are instead "incorporating only the 'goodies'" into their reform plans.

"It reads as if it were developed for a country whose debt problems have been solved, when in reality debt is the highest it has ever been other than around World War II," they wrote.

Similarly, the Committee for a Responsible Federal Budget accused the Senate of using various "gimmicks" to artificially lower the long-term cost of its reform plan by about $800 billion.

"The bill hides its true cost by having major provisions arbitrarily expire, making them look much cheaper than they actually are," the non-partisan group noted. "Adding $1.4 trillion to the debt is bad enough, but potentially adding $2.2 trillion would be even more financially irresponsible. Tax reform should not come at the expense of future generations."

Given the uncertainties regarding the actual effect of tax reform, columnist George Will recently described the effort as "a gamble worth taking." Crapo, though, strongly disagreed with that characterization.

"It's not a bet; it's taking action to fix a serious problem," he said.

If Congress does nothing to address America's uncompetitive tax code, he said, economic growth will continue to limp along at 2 percent or less per year, worsening the federal deficit and limiting opportunities for American workers and entrepreneurs.

"It's not like we just chose to get into this (tax reform) issue," Crapo said. "We're already in it; we have a tax policy in place. The question is, are we going to try and fix it?"

The House and Senate are currently working to reconcile the differences between their two bills. Once that's done, the two chambers will vote on the updated version. If it's approved, it will go to the president for his signature.

"The differences are resolvable," Crapo said. "The choices are between which perspective should we take (to address a particular issue). That means we're in position to pick the best option, so I'm hopeful we'll end up with an even better bill."

Legislative leaders hope to complete the reconciliation and vote on the updated bill before Christmas, he said.

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Spence may be contacted at bspence@lmtribune.com or (208) 791-9168.