Deficit-neutrality is not a must in tax reform, Office of Management and Budget Director Mick Mulvaney told the Washington Examiner Wednesday afternoon, suggesting a shift — or at least a refinement — of the White House's stance.
"Deficits are not driving the discussion, at least in this White House, about the tax plan," Mulvaney said. "Growth is driving the discussion on the tax plan."
This openness to a deficit-increasing tax reform could look like a shift if you read the president's budget. The budget that Mulvaney and OMB issued last week assumed that tax reform would be deficit-neutral on a static basis.
(A quick translation: "Revenue-neutral" means that the revenue generated by closing loopholes would fill the revenue gap from lowering rates. The "static basis" part means that this revenue neutrality is assumed without reciprocal economic growth from tax reform, even though such growth is expected.
But with the budget out of his hands now and OMB focused on tax reform, that neutrality assumption hardly operates as a rule. As Mulvaney put it: When crafting the budget, "we assumed for purposes of the budget that whatever we did would be paid for with the offsets by way of the exemptions, the loopholes, the deductions, so forth. We just made an assumption".
Yet, Mulvaney continued, "that is not an indication of what our preference is, as far as tax policy. In fact, several folks in the White House have said they are interested in pushing a larger tax bill that would add to the deficit."
Mulvaney was clear about the difference between budget and tax reform. ''I wouldn't take what's in the budget as indicative of what our proposals are.''
This ambivalence on deficit neutrality was already foreshadowed by the rough tax reform outline the White House has issued: a one-page briefing sheet, which isn't exactly a budget balancer.
On the contrary, the bipartisan Committee for a Responsible Budget has projected that the tax plan would actually increase the deficit by between $3 trillion and $7 trillion over 10 years. In large part, that's because mortgage interest and charitable deductions will survive the knife in any tax reform bill.
Mulvaney counters these theories by arguing that tax reform would raise economic growth to a stable 3 percent annual rate. Tax reform's guiding star will be trying to achieve 3 percent growth — it will not be revenue neutrality, Mulvaney said.