McConnell, warning of ‘dangerous’ debt, wants tax cut offsets

(Bloomberg) — President-elect Donald Trump’s race to enact the biggest tax cuts since the 1980s went under a caution flag Monday as Senate Majority Leader Mitch McConnell warned he considers current levels of U.S. debt “dangerous” and said he wants any tax overhaul to avoid adding to the deficit.

“I think this level of national debt is dangerous and unacceptable,” McConnell said, adding he hopes Congress doesn’t lose sight of that when it acts next year. “My preference on tax reform is that it be revenue neutral,” he said.

During a news conference, the Kentucky Republican also poured cold water on the idea of a massive stimulus package, effectively laying out markers on taxes and spending that that could cramp Trump’s ambitions.

The Committee for a Responsible Federal Budget, a nonpartisan think tank, has projected that Trump’s plans would increase the debt by $5.3 trillion over a decade, with deficits already over $600 billion a year and rising on autopilot.

If Trump achieves the plans he has laid out, “the deficit’s going to be a lot higher than expected, at least in the short term,” said Stan Collender, a budget expert and former Democratic congressional aide. It could rise to $1 trillion per year for four years, he said.

Related: What Trump may mean for interest rates

As for Trump’s infrastructure plan, touted as costing roughly $1 trillion but with more than 80 percent of the financing coming from the private sector, McConnell said he’s looking forward to seeing the details.

“What I hope we will clearly avoid, and I’m confident we will, is a trillion-dollar stimulus,” he said. “Take you back to 2009. We borrowed $1 trillion and nobody could find that it did much of anything. So we need to do this carefully and correctly and the issue of how to pay for it needs to be dealt with responsibly.”

One interesting wrinkle is that Trump has named McConnell’s wife — former Labor Secretary Elaine Chao — to head the Department of Transportation, which would likely make her one of his point people on any infrastructure package.

Debt limit

The debt limit will need to rise next year to avoid defaulting on government obligations; McConnell said he wasn’t sure if that would be paired with any deficit-reduction measures next year as it was in 2011, when Republicans held the debt limit hostage and extracted more than $2 trillion in deficit cuts over a decade from President Barack Obama.

House Speaker Paul Ryan has also said he wants tax changes to be deficit-neutral, indicating that Republicans will assume positive macroeconomic benefits from tax cuts to ease the projected budgetary hit — a process known as dynamic scoring that is popular on the right.