Tax Reform and Infrastructure

Tax reform legislation, if and how passed, probably won’t have much in it about US infrastructure renewal per se. But I think the process will still be extremely enlightening about how Congress and the Administration look at economic and financial issues (with all their political and social ramifications) in the context of actually trying to pass an infrastructure bill in 2018. So well worth paying attention to it, and I’ll focus a number of coming blog posts on it.

To start, I read the House’s TCJA 80-page summary and went through the JCT numbers. There’s definitely a ‘drain the swamp’ theme against using federal tax code to support private investment even when that doesn’t count much as pay-for. PAB repeal rationale: “The Federal government should not subsidize the borrowing costs of private businesses” – sounds like an ideological ex cathedra statement. At least PAB cut gets about $39bn in revenue, but whacking tax credit bonds just gets chump change $0.5bn Cutting rehab and new market tax credits together don’t add up to much either – about $11bn. Also, it seems the PAB repeal in effect cuts about half of LIHTC credits.

Presumably Senate version will be much more moderate, but won’t they have to fight for the big stuff first (SALT, home mortgage, deficit itself etc.)? If GOP really is serious about passing partisan bill quickly (and it seems they have a lot of existential-type motivation for that), I could see an outcome where a lot of small-scale stuff stays on the chopping block.

Especially this outcome re infrastructure – wouldn’t one response to negative impact of TCJA PAB and tax credit repeals on infrastructure be: “we can always put infrastructure-specific PABs and tax credits back in the infrastructure bill if they’re all that important?” If so, then Delaney’s flashing billboard might end up as the real problem, apart from any further energizing of the drain the swamp animus if TCJA passes i.e. bait & switch.

Re chances of passing partisan bill, many folks know far better than I do about this stuff, but after reading the summary it struck me that this is very different than Obamacare attempt. In that mess, there was visceral consensus on ‘repeal’ but no unity or even coherence on the ‘replace’ part. In TCJA, there seems to be a clear unifying theme on the ‘repeal’ cuts (even apart from the need to raise revenue) –actually somewhat populist (look at cuts to executive compensation) – but more importantly, the ‘replace’ proposal is crystal clear: broad rate reductions and simplification. There’s a much better story to build & enforce consensus, even in the face of extreme Democrat and media (and lobbyist?) opposition. And 2018 mid-terms will definitely concentrate minds.