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Ryan on Tax Cuts: Political Capital with Al Hunt

Bloomberg


Washington, Jun 8 -

U.S. House Budget Committee Chairman Paul Ryan talks with Bloomberg’s Al Hung about freezing the current tax code for a year and proposals to cut Medicaid spending by $800 billion over the next decade.



Al Hunt: We begin the program with the House Budget Committee chairman, Paul Ryan of Wisconsin. Thank you for being with us, Mr. Chairman.


Congressman Ryan: Good to be with you.


Al Hunt: As you know, the Bush tax cuts expire and sequestration is supposed to take effect Jan. 1. You’ve expressed skepticism about getting anything done with the current Democratic leaders. What are the odds that anything will be done on these two issues before year end?


Congressman Ryan: Well, what we’re doing here in the House is we’re passing the bills that we think ought to deal with this. We’ve already passed what we call our reconciliation package to deal with the sequester. That’s the bill sitting over in the Senate, and it’s exactly what we think we ought to do - how to cut spending to replace the sequester for the first year. We’re going to then probably later this month - perhaps July - bring a bill to the floor on the taxes. We want to extend the current tax code for a year so that businesses, investors, you know, have certainty. And then we want to create a system of fast-track authority for tax reform.


Al Hunt: For taxes. But you’ve got to cut a deal with Obama to do that.


Congressman Ryan: Right, so - well, like I said -


Al Hunt: Do you think that’s possible?


Congressman Ryan: I don’t know the answer to that question. I really don’t, Al. I think a lot of this will depend on who wins the election. The president is dead set against, you know, letting these taxes stay where they are -


Al Hunt: Right.


Congressman Ryan: - irrespective of the advice that we’re getting from former Obama administration advisers that these tax increases would hurt the economy. We want to -


Al Hunt: Like who?


Congressman Ryan: Larry Summers, Peter Orszag, you know -


Al Hunt: No, Larry Summers and Peter Orszag didn’t say that. Larry - Larry Summers says he is for ending the tax cuts for the upper income.


Congressman Ryan: But they’re saying that - they’re saying the CBO - everybody is saying if we have these tax increases at the end of the year, that’s going to hurt the economy.


Al Hunt: But doesn’t CBO also say that spending cuts, if they took effect too quickly, would hurt the economy?


Congressman Ryan: Yep, they do. They do. And so that’s why we also are replacing the sequester with longer, bigger spending cuts that take place over time. The president is committed to these tax increases. That means we have an impasse. So to answer your question, we have an impasse on economics, and it seems to me that it might take the election to break this impasse. What we’re going to do is keep all taxes where they are for a year, because we still think this tax code needs reforming.


Al Hunt: But let me ask about your proposal there, because you have been very specific on the tax cuts that you would like to see, and you’ve said you’ll make up the revenue by closing loopholes -


Congressman Ryan: Right.


Al Hunt: But you haven’t told us any loopholes you’d close.


Congressman Ryan: Yeah, so - so the budget doesn’t do that. The budget is not a tax bill.


Al Hunt: No, but you’ve been specific on what - what cuts - what tax cuts, so why not?


Congressman Ryan: No, we’ve been specific on what spending cuts, because budgets are built on spending cuts. Right.


Al Hunt: - you know, the estate tax, and you talk about other things. So my question is, what loopholes?


Congressman Ryan: What loopholes? Right. So what we don’t want to do is cut some backroom deal and then tell the country what we’re going to do.


Al Hunt: Right.


Congressman Ryan: What we want to do in the Ways and Means Committee is have hearings in plain view, in the public, and we will basically say, we want to lower our tax rates. That means we’re going to have to broaden the base. Let’s have public hearings about which ones matter the most.


Al Hunt: So home mortgage deduction will have to be curtailed?


Congressman Ryan: I don’t know the answer to that.


Al Hunt: But if you look at the numbers, they have to be.


Congressman Ryan: Because what - if you look at the numbers, there’s fiscal space left for some tax priorities, meaning tax expenditures. And my personal view is, we should not look at as much as what’s in the tax code, but who gets them. Higher- income individuals disproportionately use tax write-offs and tax shelters. And what we’re saying is, if you deny these write-offs to higher-income people, more of their income is subject to taxation -


(CROSSTALK)


Al Hunt: So what’s higher income?


Congressman Ryan: Well, if you take a look at the top two tax brackets, that’s what we’re talking about, if you look at the top two tax brackets -


Al Hunt: You’re talking about people making over $200,000 a year?


Congressman Ryan: Yeah, and if you look at those income areas -


Al Hunt: But they would have to lose some of their tax -


(CROSSTALK)


Congressman Ryan: Yeah, that’s my opinion, yeah. And that’s the kind of thing we’re saying.


Al Hunt: But you’re talking about home mortgage deduction, charitable, state and local, health care exclusion. Those are the big ones.


Congressman Ryan: Ethanol, you name it. There’s a lot of stuff.  So that’s what we want to do.


Al Hunt: But do you agree that the big ones are going to have to be addressed somehow?


Congressman Ryan: Yeah, I do.


Al Hunt: You’re not saying the home mortgage deduction will be eliminated, but you’re saying it’s going to have -


(CROSSTALK)


Congressman Ryan: Right. And we should look at who gets them. So should we, in exchange for lower tax rates, give higher-income individuals these kinds of tax shelters?


Al Hunt: Would you tell us what the cutoff would be? Would it be $200,000?


Congressman Ryan: We’ve got to - that’s what - I’m not going to negotiate with myself right now. What I’m trying to say, Al, is we want to have this done in public view. We want to do this with hearings. We want to go through the regular process, not a backroom deal, and say we’re going to lower our tax rates, just like Ronald Reagan and Tip O’Neill did, broaden the base to get better economic growth, to help small businesses - They increased capital gains taxes to do that.


Al Hunt: And corporate taxes. The corporate tax went up a great deal.


Congressman Ryan: Yeah, that was a mistake. We think that’s a mistake.


Al Hunt: So you can’t do that. Would you do 401 - would you lower the write-offs for 401(k)s or capital gains and dividends?


Congressman Ryan: I don’t know the answer to your question. What I do know is, we think the smart thing to do - a lot of other countries have done this - is to lower our tax rates.


Al Hunt: Would it be revenue-neutral, what you do?


Congressman Ryan: That’s what we think we ought to do, yes.


Al Hunt: Base-broadening would make up for the - for the lower rates.


Congressman Ryan: That’s right.


Al Hunt: Let’s talk about entitlements. And usually it’s Medicare. I want to ask you instead about Medicaid. And I think, you know, over 10 years again, it would be about $800 billion less than would have been spent on the year proposed. That’s going to hit a lot - a lot of poor people, isn’t it?


Congressman Ryan: No. What we’re saying is, here’s the problem. Lots of states are tied, and they’re not able to kind of customize their Medicaid benefits to meet the unique needs of their populations because of all these rules from Washington. So what we’re saying - and lots of governors are telling us, give us this freedom.


We’re going to block grant Medicaid to the states. We will continue to grow Medicaid spending. It will grow at inflation plus population growth, which is what we have - so Medicaid spending under our budget continues to grow each and every year. It just doesn’t grow at that feverish pace that the president is proposing, because we think that’s unsustainable, but in exchange for that slower growth rate of Medicaid spending, we give the states the freedom to customize their Medicaid benefit to meet the unique needs of their states. New York is different than Wisconsin which is different than Mississippi.


Al Hunt: But many - but many of those Medicaid recipients - as you know - are people with disabilities, children with disabilities. I mean, if you go and you -


Congressman Ryan: And their spending will continue to rise each and every year -


Al Hunt: But the -


Congressman Ryan : But we’re going to give the governors and the state legislatures the ability -


(CROSSTALK)


Al Hunt: - it would be devastating for a lot of these families, because those include some middle-income families, because it’s so expensive.


Congressman Ryan: Here’s the problem with Medicaid. It’s going bankrupt. It can’t keep spending at its unsustainable rate. It’s growing at a race - at a rate that will bankrupt not only state budgets, but the federal budget. That’s point number one.


Point number two is more and more doctors aren’t even taking Medicaid, Al.


Al Hunt: That’s true.


Congressman Ryan: The surveys show us that about half of doctors in America don’t even take Medicaid patients.


Al Hunt: If you were convinced that this would hurt people with disabilities, these cuts, would you revisit it?


Congressman Ryan: Yes, but I don’t believe that that’s the case. I believe - just, look, I worked with Tommy Thompson years ago to get these waivers from HHS called BadgerCare. It has really worked to improve our program, and it was really difficult to get these waivers.


Al Hunt: Two quick political questions. Scott Walker, who just had a stunning victory in your state of Wisconsin, says Mitt Romney should pick you as his running mate. You really want to -


Congressman Ryan: With friends like that, you know -


Al Hunt: But you - but you want it now, don’t you?


Congressman Ryan: No, I’m not -


Al Hunt: You don’t want it?


Congressman Ryan: I’ve got an important - look, we’re here in the House Budget Committee -


Al Hunt: You do. You are incredibly important. You don’t want to be vice president?


Congressman Ryan: It’s not something I am seeking out. It’s - look, I want to do what I can -


Al Hunt: But you’d still like it, wouldn’t you?


Congressman Ryan: I want to do what I can to help save this country from a debt crisis, get back to an opportunity society. Congress - don’t underscore how important Congress is. I feel like we’ve done a lot to move the center of gravity in this debate. I believe America is on the cusp of a renaissance, an opportunity society, upper mobility, economic growth, for -


Al Hunt: If you could be part of an administration that would want to do that -


Congressman Ryan: If I ever - if that bridge ever comes, I’ll decide -


(CROSSTALK)


Al Hunt: You won’t rule it out. One final question. The greatest job growth we’ve had of any president in the last 40 years was not Reagan, it was not George W. Bush, it was Bill Clinton. Why? And what role did government play?


Congressman Ryan: Bill Clinton had bipartisan agreements with a Republican Congress to keep taxes low and keep spending low and to do entitlement reforms.


Al Hunt: Had a lot higher rates than we have now.


Congressman Ryan: The ’97 budget agreement is to me the best budget agreement that occurred in those times. He brought capital gains taxes down -


Al Hunt: And kept the 39 percent top rate.


Congressman Ryan: Well, he kept the capital gains tax down and, more or less, he cut spending, as well. And he went after entitlement spending. So to me, what happened was, Bill Clinton did not release a sea of regulators to chill innovation. He got spending under control. He had - he helped bring down the tax on capital, and that helped finance a dot- com boom -


Al Hunt: You sound like a Clintonite, Mr. Chairman.


Congressman Ryan: You know, I guess they’d say Republicans are more like that these days. Look, what I saw in the Clinton administration, I guess they call it triangulation - I saw moderation in the second term. I saw a Democrat who did not look at Republicans as his enemies. He looked at them as adversaries that can be compromised with. We don’t see that from this president.


Al Hunt: Mr. Chairman, we thank you. We’ll look forward to all those experiences.