Trump Drops Deficit and Debt from Tax Cut Principles

President Trump on Wednesday outlined a framework for his administration’s plans to reform taxes in the U.S.

One notable omission: concern over the effect of tax cuts on federal budget deficits and federal debt levels.

Trump’s speech emphasized overarching themes rather than details about tax cuts and other changes to the U.S. tax system. He announced four principles would guide his administration’s efforts on taxes: a tax code that is simple and easy to understand, a globally competitive rate on business taxes, tax relief for middle class families, and a tax break for corporate profits repatriated from abroad.

This was a departure from the principles of tax reform announced during the 2016 campaign. During the campaign, Trump said his tax plan would be designed to meet “four simple goals.” Those were: tax relief for middle class Americans, simplify the tax code, grow the American economy with changes to corporate code, and not add to the debt or deficit of the federal government.

What appears to have happened is that Trump dropped debt and deficit neutrality as a goal for tax reform, breaking the corporate goal into two different principles: lowering business tax rates and repatriating dollars. During the campaign, those were treated as a single goal.

Deficit neutrality is a major concern inside of Washington, D.C. Many of the rules around legislation make it easier to pass laws if they don’t grow the deficit over the next decade. Ironically, this may mean that the government winds up taxing American workers more, even when incomes are stagnant, in order to avoid borrowing more, even when borrowing costs are at historic lows.

Its not clear if the changes in the goals or principles underlying tax reform reflect a change of policy. That is, its not clear if the proposed tax plan will be built to not result in higher deficits or if the president was signaling that tax reform is too important to allow deficit neutrality to stand as an obstacle.