If Donald Trump wins the presidential election and the House and Senate remain in Republican hands, advisors can expect that Republicans in the House will pursue tax, regulatory and entitlement reform as well as increased defense spending and replacements for Obamacare and federal anti-poverty programs.
These six agenda items comprise the House Republican plan called “A Better Way,” which House Speaker Paul Ryan, R-Wis., introduced in a series of events in early summer.
In a speech before the New York Economic Club on Monday, Ryan said the tightening presidential race presents “a real opportunity…to win a mandate for unified Republican governance,” which would pave the way for the House Republican agenda.
Ryan highlighted several items in that Republican agenda:
• Lower tax rates. Federal income tax brackets would be reduced to three from seven. Top tax rates would be cut from 39.6% to 33% for individuals and from 35% to 20% for corporations. A separate tax rate for small businesses would be set at 25%. “You can’t defend this tax code anymore,” said Ryan, who noted the Republican tax reform program, according to the Tax Foundation, would create 1.7 million new jobs.
Former CBO Director Peter Orszag, now a vice chairman of investment banking at Lazard, Freres & Co., who was part of the Q&A session with Ryan, noted that the Tax Policy Center and Penn-Wharton Business model have said the GOP tax plan would increase the deficit by $3 trillion over the next decade.
Ryan’s plan also favors taxing corporate income earned overseas on a territorial basis, rather than current worldwide basis. Under a territorial tax system, the U.S. would tax only the U.S. income of a corporation and exempt most or all foreign income. Under the current worldwide system, that same corporation has to pay the corporate income tax when the foreign earnings are “repatriated,” but they can be deferred until then, and foreign tax credit can be used to offset some of the U.S. tax owed.
• Regulatory reform. Ryan called for revamping Dodd-Frank and DOL rules on overtime as well as restoration of the separation of government powers by which “rules and regulations have to come through Congress” before they take effect. That would essentially preclude the White House from instituting administrative rules, a tactic President Obama has used as a workaround to gridlock in Washington.
“We need to restore separation of powers of government,” said Ryan. “Rules and regulations have to come through Congress.”
• Entitlement reform. Ryan spoke of reforming Social Security and Medicare “to prevent them from bankrupting themselves.” He also discussed replacing Obamacare—which he said “is imploding”—with “patient-centered healthcare,” but he provided no details on that plan.
When asked by Glenn Hubbard, dean of The Columbia Business School and former Chairman of the Council of Economic Advisors under President George W. Bush, about any recommended spending restraint if taxes were cut and military spending were increased at the same time, Ryan said, “If you want more money for defense and [anti]terror”—which is part of the Republican House agenda—“you have to go where the money is, and that is entitlements.”
He said such entitlement reform would not affect those in or near retirement.
• Anti-poverty program reform. Ryan said the more than 70 federal anti-poverty programs, costing $82 billion, create “huge disincentives to work.” He favors reducing the number of federal programs and sending many programs back to states to administer, in conjunction with private and nonprofit organizations such as America Works and Catholic Charities. He also favors paying out benefits of earned income tax credit monthly rather than as a lump sum at the end of the year.
It’s not clear that Ryan and his Republican colleagues will succeed in passing these reforms even if Donald Trump wins the presidency and both houses of Congress remain in Republican hands. In his daily commentary today, Greg Valliere, chief global strategist at Horizon Investments, noted, “If he wins, Trump will get little cooperation from Democrats and only grudging support from Republicans.”
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