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U.S. needs to be a ‘little bit patient’ to see robust economic growth from the GOP tax plan, says Thune

After a year in the majority marked by several legislative speed bumps and dead ends, Republicans are happy with the final tax bill that's poised to pass, according to Sen. John Thune, R-S.D. Judy Woodruff asks Thune about the long-term tax increase for the middle class, doubts that the tax cuts will spur the kind of growth predicted by the GOP plan and concerns about a ballooning deficit.

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  • Judy Woodruff:

    We return now to our lead story, the tax bill, this evening.

    I spoke just a little while ago with a key member of the Republican leadership team, South Dakota Senator John Thune, about how big a day this was for the GOP agenda.

  • Sen. John Thune:

    I think it’s fair to say that, Judy, if you look at this tax bill.

    And it has been a long time in the making, and there’s been a lot of hiccups along the way and speed bumps. But we’re going to get a good product that delivers the things that we committed to, to provide meaningful tax relief to middle-income families and to get business taxes down, to where our economy can start growing and creating those better-paying jobs and those higher wages.

    So we’re happy with where things are. Obviously, this bill also includes provisions that repeal the individual mandate under Obamacare, that expand energy exploration on the North Slope in Alaska, so a lot of policy contained in here that are things that many Republicans and I think many Americans have supported for a long time.

  • Judy Woodruff:

    Well, you — let’s talk about the middle class and how it benefits.

    Of course, the White House is also saying the middle class is the big beneficiary, but The Wall Street Journal says today that, by 2019, middle-income households are indeed going to get $61 billion additional in tax cuts, but by 2027, those same households are going to end up with a net tax increase.

    So, how do you explain that to them?

  • Sen. John Thune:

    Well, frankly, the reason that that is the way that it is because we have to use the crazy Washington accounting methods here when we do these bills.

    Frankly, it will be very easy, hopefully next year, if the Democrats will join us, to make those tax cuts permanent on the individual side. That way, that tax increase that you’re talking about at the end of the 10-year period would go away.

    Frankly, the reason it happens is because, on the individual side, the tax changes that we’re making sunset in 10 years. But, again, that’s to satisfy the reconciliation rules that we have to use here in the Senate, but it will be easy to correct and to remedy that simply by voting to make those tax cuts permanent. And I hope we get the opportunity to do that.

  • Judy Woodruff:

    In terms of the growth that this bill is predicted to create on the business side, Senator, it is hard to find an independent economist who agrees that the level of growth, the amount of growth that the Republican majority say is going to happen, that it’s actually going to materialize.

    Where does that confidence come from that that’s going to happen?

  • Sen. John Thune:

    Right.

    Well, I think there are different models out there, as you mentioned, Judy. And, of course, we all take — I think both sides take the best of the models, the things that they like.

    But we believe, if you look at where we are today and the growth that’s predicted by the Congressional Budget Office, by the Joint Committee on Taxation, which are the two official score keepers that we have to deal with here in Congress, they’re predicting, for the next decade, that we’re going to grow at 1.8 to 1.9 percent.

    To cover the cost of the tax cut, all you have to do is realize, depending on whether you use the CBO or the Joint Committee on Taxation, 2.1 to 2.3 percent annual growth. We think it’s very achievable.

    We have got an economy that in the last two quarters has grown 3.1 percent, 3.3 percent. Historical average is 3 to 3.5. So if we get anywhere close to normalizing growth, we will blow that number away.

    So, it really does come down to what your expectations are, what your assumptions are about growth in the economy. And we think very reasonable, modest assumptions about growth get us to where we totally cover the foregone revenue and the tax cut and actually start getting us to where we start paying down some of the deficit.

  • Judy Woodruff:

    Do you give yourselves a deadline next year when you need to see that growth materialize?

  • Sen. John Thune:

    Well, I think it will be over time.

    I do think that you are already starting to see the economy come back around. As I mentioned, the last two quarters at 3.1, 3.3. We would love to build on that. It would be great to get a full year of 3 percent growth. We haven’t had a year of 3 percent growth now for about a decade.

    And I think that this tax reform, putting these policies in place that will encourage investment, encourage small businesses and large businesses to expand their operations will start generating some growth, hopefully right away.

    Allowing businesses to expense, for example, their capital investment I think will be a huge economic incentive for them to invest. And so, hopefully, we will see that start to emerge early. But I think we have to be a little bit patient, too.

    These are changes that don’t — these are big changes. There is going to be a little bit of a transition. Everything is not going to happen overnight. But I do think you will start to see some uptick in the economy and hopefully it will sustain what we believe is already starting, is already under way, and that is a more prolonged period of economic growth that’s more traditional with historic averages.

  • Judy Woodruff:

    Well, we had a very successful businessman with us on the NewsHour last night, Michael Bloomberg, who is skeptical, he says, very skeptical that that growth is going to happen.

    But he went on to say — he said this bill is not true tax reform, and he said that the deficit that it’s going to create over the next 10 years means the country is not going to have the money that it needs to do infrastructure, the infrastructure fixes that everybody agrees need to happen, money to improve school systems that are hurting across the country.

    How do you answer that?

  • Sen. John Thune:

    Well, I think his opinion maybe differs from other economists about how much growth we’re going to see.

    But, like I said, a very small amount, a very modest amount of economic growth, two-tenths of 1 percent to four-tenths of 1 percent per year, gets you to where you cover the cost of the tax cut. And then anything you generate over and beyond that would be dollars, I suppose, that could either be dedicated toward paying down the debt or for some of the things that he’s talking about.

    But I think you have to play the long game here. You have got to look at what are the policies that are good for the economy in the long term?

    I disagree. I think there are significant tax reforms in this bill. On the international side in particular, I think we’re going to become a very attractive place to do business. The changes that we have made on the international side of the tax code are going to incentivize companies to stay here, to create jobs here, and hopefully other companies from — multinational companies from outside the U.S. to invest here.

    So, the time will tell. And there are different opinions about this, but we believe very, very profoundly that this legislation is going to be good for the economy.

  • Judy Woodruff:

    One last thing I want to bring up, and this is a criticism about fairness here, come up in the last few days, and this is the provision that would benefit President Trump and other wealthy real estate owners.

    They’d get, under this bill, a 20 percent reduction in the so-called pass-through income that they earn. How is that going to benefit the overall economy?

  • Sen. John Thune:

    Well, pass-through businesses are LLCs, subchapter-S corporations, sole proprietorships, partnerships, all kinds of small companies, medium-size companies are organized that way.

    What that deduction allows is allows them to reduce the taxable income that they are responsible for paying taxes on every year, and enables them to put more of their dollars back to work in the economy.

    And, you know, that particular provision affects not just real estate. It affects all across the spectrum when it comes to small businesses. Farmers, ranchers, people that I represent are going to benefit from this.

    We think what they do with that is, they take those savings and invest them in growing their operations and hiring more workers and paying more wages and more benefits. I think this is where you start getting that forward momentum in our economy, some of which we’re already starting to see.

    But I think this tax bill will hopefully generate more. And we will see growth rates start to get back to normal, and to get people back to where we’re actually growing incomes in this country. We have had pretty flat wages, pretty flat incomes now for the better part of the last decade.

    And that needs to change. The status quo isn’t acceptable. We can do better than where we are, and we think this tax bill moves us in that direction.

  • Judy Woodruff:

    Well, I know a lot of people certainly hope that that is the case, that it leads to the kind of the growth and income increases you’re describing.

    Senator John Thune, thank you very much.

  • Sen. John Thune:

    Thanks, Judy. Nice to be with you.

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