In tax reform, the negotiators from the Trump administration and Congress who are thought to be in charge are called the Big 6 by Washington insiders. But there’s also a Big 4, a group of supply-side economists who are playing an influential role.
The Big 4—they call themselves the Committee to Unleash Prosperity—have no official status. They don’t need it. They have something better. President Trump knows all four and likes to talk to them about the economy and taxes.
And things seem to be heading their way. With time running out for Congress to consider a massive tax bill, the Big 4 want Trump to go for tax cuts alone this year and leave reform of the tax code to 2018. The Big 6 remain committed to enacting both cuts and reform this fall.
One of the Big 4, Larry Kudlow, was invited several weeks ago to speak at a White House luncheon by Gary Cohn, the head of the National Economic Council. Trump didn’t attend, but when he heard Kudlow was there, he summoned him twice for private chats. They talked for 45 minutes.
The president has also been known to ask “Where’s Laffer?” when the subject of taxes comes up. Art Laffer was an architect of President Reagan’s tax cut, which touched off a surge in economic growth in the 1980s. He has met repeatedly with Trump.
Steve Forbes hasn’t personally visited the White House to talk about taxes since Trump was inaugurated. But his opposition to a border-adjustment tax on imports is well known from his writings in Forbes magazine. He disparages it as a national sales tax. A study by Laffer that frowns on the border-adustment tax, a proposal of the Big 6, has circulated at the White House.
The fourth Big 4 member is Steve Moore, who’s been active in pushing what he calls “three easy pieces.” It consists of a deep reduction in the corporate tax rate, repatriation of overseas profits by American companies, and a doubling of the standard deduction to relieve the tax burden on the middle class.
When the Big 4 came together in 2015, their plan was to advise each of the 17 Republican presidential candidates. And they came close to helping all on their tax agendas. Laffer, for example, advised Ted Cruz. Their advice focused on tax cuts to spur investment, job creation, and growth.
Kudlow and Laffer handled this task for Trump. Both are believers in incentives for growth, which were central to the tax cuts of John F. Kennedy and Reagan.
The breakthrough with Trump was late in arriving. The Big 4 hadn’t taken him seriously as a candidate, much less a president. But when Moore and Kudlow were asked in March 2016 by aide Corey Lewandowski to meet with Trump, they accepted.
They were surprised Trump already had a plan, one they liked. They were surprised again to discover he had a firm grasp of tax issues. After their first session, they concluded, in Moore’s words, that “this guy can actually win.” They committed themselves to “legitimizing” his tax ideas and candidacy.
To Trump’s plan, they added expensing, the immediate deduction of the full cost of capital expenses such as new factories and equipment—this to accelerate business investment. And they sold Trump on killing the “death tax,” the federal inheritance tax.
“I’m a supply-sider,” Trump told them. He insisted his tax proposal “can’t be a cut for people like me.” A true supply-sider wouldn’t have insisted on that, but Trump returned to the point often in their meetings, Kudlow said. It would be bad politics. Kudlow and Moore suggested doubling the standard deduction “so that most filers wouldn’t have to itemize and we could simplify taxes that way.”
Kudlow and Moore were the first to advocate a straight tax cut with reform coming later. But it wasn’t until a column by the Big 4 appeared in the New York Times in April (“Why Are Republicans Making Tax Reform So Hard?”) that the idea got traction. Trump’s reaction that he wanted his tax bill to look like the Big 4’s was widely reported.
Besides reiterating their tax proposals, the column also argued for funding a bold infrastructure program including “modernizing the electric grid and broadband access.” Forget tax reform in 2017. “Jobs and the economy are the top priority to voters,” they said.
Trump liked all this, but the Big 6 haven’t signed on. And they especially oppose the Big 4 suggestion not to require the tax bill to be revenue neutral. Otherwise it would add to the deficit.
The Big 4 say this would diminish the impact of the tax cuts. However, it would mean their tax cuts would not be permanent, lasting 10 years like the cuts of President George W. Bush.
The Big 6 matter. They are drafting the White House tax measure that Treasury Secretary Steve Mnuchin has said will be released shortly. The Big 6 are Mnuchin, Cohn, House speaker Paul Ryan, Senate majority leader Mitch McConnell, House Ways and Means Committee chairman Kevin Brady, and Senate Finance Committee chairman Orrin Hatch.
Ryan and McConnell back revenue neutrality. So do an unknown number of Republican senators, including Rob Portman of Ohio. But the bill, Portman told Fox News, “ought to use dynamic scoring, meaning a macroeconomic score that assumes that good tax policies actually might change behavior. And it will.” If so, it would project higher revenues from increased growth and a greater chance of avoiding a higher deficit even while cutting taxes.
Trump favors a big tax cut. His original plan in last year’s presidential race projected a deficit of $6 trillion. But later in the campaign that was narrowed to a revenue loser of $2 trillion over 10 years. Moore says the revenue boost from a large cut could take care of that deficit.
The president is unlikely to make a deal with Democrats on tax cuts, as he did on the debt hike. Democrats want to raise taxes. It’s in their DNA. So far as we know, it’s not in Trump’s. And he’s the Big 1.
Fred Barnes is an executive editor at The Weekly Standard.
