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Top Dem: Party 'Open to Talking About' Value Added Tax

Rep. Joseph Crowley (D-N.Y.), right, sitting next to Rep. Bill Pascrell Jr. (D-N.J.), speaks during a meeting of the House Ways and Means Committee on Capitol Hill on March 28, 2017. (AP Photo/Susan Walsh)

WASHINGTON – Rep. Joe Crowley (D-N.Y), vice chairman of the House Democratic Caucus and member of the House Ways and Means Committee, told PJM that he does not think Congress should halve the current 35 percent corporate tax rate as President Trump has suggested.

“We’re trying to get it down to anywhere from 15 to 20 percent,” Trump said in January.

Crowley also said he is willing to discuss a Value Added Tax (VAT) as part of a comprehensive tax reform package to see “what effect that will have” in the United States. Under a VAT system, the “value added” to a product would be taxed at each stage of production.

PJM: So, tax reform looks like it’s going to be the next big thing the House is going to take up. Are there areas of common ground between Republicans and Democrats where you could actually reach a consensus?

CROWLEY: Well, as I said here, I think both sides recognize that the code is overly complicated. Because of that, it’s inefficient and in many respects it’s not fair. And the most important aspect of it, as I’ve said, is that it doesn’t – parts of the code do not promote growth here and actually incentivize growth overseas, so those are things that we all kind of agree on.  The real question is – the toughest question here is – we recognize how you get the 28 percent corporate rate without going into personal taxes or even pay-fors at this point and simply by eliminating all expenditures. It’s easier said than done, but you have to do it over a time period because some pay little or no tax right now because of expensing; compare, you know, maybe a pharmaceutical company to Disney, where Disney pays the marginal rate bringing them both to 28 percent, means some would have to come up in tax and some would come down.

You know, how you make that a fairer system, what you do, does that necessarily determine what tax rate you should have is a question. You know we haven’t incentivized, in the past, innovation, you know, if you do this you get these expenses, but is that what we have to do to make the code a more equal and fairer code? Their attempt to go to 25 or 20 percent puts even more tremendous stress on that, so then you have to go to a BAT or some type of that: VAT or type of value-added tax, or border adjustment is what they are describing it now as a BAT. And we know the BAT creates about a trillion dollars in revenue, that you can then use too. But Democrats will be keeping up how to drive – we kind of tend to look at BATs or VATs as regressive taxes, you know. So it’s a complicated, it’s a long – I have even more to say but it’s a complicated answer to a short question.

PJM: It’s a very complex issue, but on the VAT tax they’re talking about border adjustment. A traditional VAT tax that works in other countries or that other countries have, at least, do you think that could work in the United States?

CROWLEY: Well, it’s been something that we haven’t necessarily gone to in terms of – sales tax, for instance, is typically a states’ issue, you know, states have used that nominally in terms of tax purposes in terms of the impact. A VAT would be usurping that, taking for the federal government as opposed to state, and I think we’re open to talking about that and seeing what effect that will have because I do think that bringing our overall rate down does make us more competitive, a more attractive place. But I don’t think we need to become Ireland, I think we get caught up in this whole thing, you know, some would say eliminate all corporate taxes, right? You know, but I say no. I mean, there are things that the federal government, except for those who are into deconstructing government, recognize that are there to help protect corporations including our jurisprudence system – that is much more far-reaching than anything Ireland, my ancestral home I come from, could ever do. There are things that make us an attractive nation besides our rate in terms of stability, in terms of rights and freedoms and way of life and such that make us an attractive place to want to be and to do business. So I don’t think we have to go to 12 percent or to 20 percent per se; getting that right down is what we’re attempting to do and doing it in a way which is the least invasive or hurtful to the average working man in this country.

PJM: So you think getting the corporate tax rate down as low as the Trump administration’s talking about, you can’t do that, you’re saying, unless you have something else to offset –

CROWLEY: I haven’t been presented with a plan that shows how you get there without hurting middle-class and working people in this country, and if I’m shown that and can be convinced it can work then we can talk about that. We haven’t been incorporated yet in anything. We haven’t been asked to come to the table by the Republicans or the president at this point.

PJM: And when it does come up and you are brought in to the table, because the president’s talking about engaging Democrats more, if you’re brought to the table and they’re pursuing individual rate cuts for the upper end and for everybody, is that something you could get behind or could that lead to the talks falling apart?

CROWLEY: It all depends on how we square all this… everyone wants tax cuts, we all, all our constituents, no one likes to pay taxes, particularly the president, we know that. But it’s really more about how this all squares in the end. Government needs to operate and the programs that I care about need to be sustained as well as our national defense. So I have to see in its totality to isolate – again, silo this off into here, but over here you’re doing something else. I need to see it in this totality.

PJM: We’ll see. It’s going to be a quite a debate.

CROWLEY: It will be. There is a reason why neither healthcare nor tax reform was suggested by Democrats after the election as things we could work on right away – it was infrastructure. We did that for a reason – for some reason, that seems to have been lost on everyone.

PJM: Senator Manchin said the same thing – why don’t they deal with infrastructure first, opioids, for example, the opioid crisis, and then go to these other less –

CROWLEY: Yes. Things we can obviously work on to help promote the country, move forward, you know, and they would all have an impact on the economy and on jobs and on particularly, you know, people who are working – paying taxes is a sign that you’re earning income, you’re making money, you know. To some degree, you shouldn’t complain about it because you actually have an income, you’re making money. It’s those who don’t have those jobs or don’t have the faith that they’re going to have a job or sustainable one, or that their children will have it or be able to afford college, all these different things that we could be working on as opposed to trying to, you know, break down the tax code so that the rich pay less. It doesn’t make any sense to us.

PJM also interviewed Sen. John Hoeven (R-N.D.), a member of the Senate Committee on Appropriations, about tax reform. The conversations took place at The Atlantic’s recent Renewal Summit in Washington.

PJM: What challenges do you foresee the Republicans facing on that issue, specifically the challenges they face getting Democrats on board to actually get a comprehensive tax reform package done?

HOEVEN: Well, first we have to see what the tax package looks like coming out of the House. They’re talking about a BAT tax for CBO scoring purposes and so forth. I think that’s a concern in the Senate, but what we’re trying to do is work with the administration and the House and try to, you know, come up with a framework that we think works in terms of building support. Then the question is, how do you get Democrats to engage? We’ve got to get them to engage, whether it’s healthcare reform, something else. We need to get them to join us and start working on this stuff, and that’s why I offer up the infrastructure piece. So then the challenge there becomes, do you look at dynamic scoring or do you look at static scoring, because if you feel bound to static scoring with CBO then you get into the whole deficit issue and how do we address that. And that’s the purpose of the border tax and all those kinds of things.

If you look at dynamic scoring, and you believe as Republicans really do that by lowering taxes you create more economic activity, and it’s the growth in the economy that creates revenue and not higher taxes, then that creates a path combined with repatriation to actually do tax reform and some kind of infrastructure package. And I think that leads the way to getting Democrats to work with us. So I think that could be an avenue to get there.

PJM: Do you think the Republicans should approach tax reform separately, like individual rates on one track and then the corporate tax rates on another, to kind of least get one piece done first and do a step-by-step process or is an entire package the right strategy?

HOEVEN: You have to do both, and so if one way or the other help create that consensus, I suppose you can do it either way – but you’re going to have to do both.

PJM: I foresee – I know we’re going back a while here, but the supercommittee, for example. You have a lot of Democrats who are going to say they don’t want individual rates cut, at least for the upper end, and that could hold up the entire comprehensive tax reform process.

HOEVEN: Well, that’s why, yeah, the idea that you’re going to do it in a couple steps I think could get challenging from the standpoint that then somebody who has an interest in the step that’s step two feels like, ‘well, wait a minute, that might not happen.’ So that’s the only reason I say I’m not sure you could do it that way, but I think we have to be open-minded in terms of how you build the consensus – still, I think you’re going to have to do both. You’re going to have to address both the corporate rates and the individual rates.

PJM: And I have one more for you on the border adjustment tax that’s being proposed. Do you think that’s a good idea or could it risk product prices being higher for consumers in the long run?

HOEVEN: At this point, I have concerns and I think that’s true of a lot of the people in the Senate. And so, you know, we’re still trying to understand how it would work, but we’re concerned about how it might affect trade, and if it would affect trade adversely. One of the things that economists talk about is that it would further strengthen the dollar, and one of the challenges we have right now is the dollar is so strong it makes it very hard to export. So if you’re for the agriculture industry or the energy industry, and some of these industries it makes it very hard for us to compete because of the strength of the dollar. So those are the kinds of things we’re going to look at very carefully.

PJM: The administration seems to be pushing that forward, so that’s going to be a central part of tax reform.

HOEVEN: Well, we’ll see, I mean, the House clearly is talking about a BAT tax. Paul Ryan came over to talk to senators about it, but I would say in the Senate, at this point, we have concerns. We’ll look at it very carefully, but we do want to get tax reform done. So at this point, we’re making sure we look at everybody’s ideas, but yeah, we have concerns.