Pence Allows That Trump Tax Plan Could Increase Deficit

(Bloomberg) -- Vice President Mike Pence said the Trump administration's tax overhaul initially could add to the U.S. budget deficit, but would result in higher economic growth to address it.

The comments acknowledge that the White House plan, details of which may be months away, wouldn't be revenue-neutral, putting President Donald Trump at odds with some congressional Republicans.

Separately, Trump said in an interview with CBS's “Face the Nation” that the network released on Monday that he still plans to eliminate the “carried interest” tax break that some investment managers use to lower their tax rates. “It's out. Done,” the president said. His White House chief of staff, Reince Priebus, had also hinted on Sunday that carried interest would be targeted as part of the tax plan, many details of which are still unclear.

Days after news that the U.S. economy expanded in the first quarter at the slowest pace in three years, Pence said on NBC's “Meet the Press” on Sunday that the U.S. needs growth that would be spurred by tax reductions to meet its existing obligations, while conceding that the president's proposal may boost the deficit.

“Maybe in the short term, but the truth is, if we don't get this economy growing at 3 percent or more, as the president believes that we can, we're never going to meet the obligations that we've made today,'' Pence said.

Trump said on “Face the Nation” on CBS on Sunday that besides the faster economic growth he anticipates, deficits are “going to be made up by better trade deals” and by what he called a “reciprocal tax” on countries that export products to the US.

“We're going to come up with reciprocal taxes and lots of other things on those countries,” Trump said. “We're also going to fix all of our trade deals. We're going to have a very wealthy country again.”

Many Republican lawmakers campaigned for years on reducing U.S. debt and deficits. Under Senate rules, any changes to taxation would end after 10 years unless the proposals are revenue neutral -- that is, they don't add to the deficit in the long run.

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Senate Democratic Leader Chuck Schumer said Trump's outline “adds anywhere from $3 trillion to $7 trillion to the deficit” and that Republicans must account for that.

“Many of our Republican friends who railed against the deficit when President Obama wanted to help middle-class people and poor people are saying that this is OK,” Schumer said on “Fox News Sunday.” “I think it's going to cause huge problems for America.”

Representative Cathy McMorris Rodgers of Washington state, the Republican conference chairwoman, said on Fox's “Sunday Morning Futures'' that “budget neutrality” is her goal for the tax overhaul because she wants people and companies to have certainty about what their taxes are going to be through permanent changes.

On the same program, IBM Chief Executive Officer Ginni Rometty said that long-term certainty, as well as an outright lowering of the corporate tax rate, is critical.

“If we get certainty, that as well helps dictate a company's behavior,” Rometty said. “That's what really spurs jobs -- is when you can make long-term investments.”

The administration released an outline on April 26 that calls for slashing the corporate income tax rate to 15 percent from 35 percent, reducing the number of income tax brackets to three, and applying a one-time, low rate to an estimated $2.6 trillion in offshore profits that have so far avoided U.S. taxes.

Full details could be months away. Economist Kyle Pomerleau of the conservative Tax Foundation has said there wasn't enough information to provide a cost estimate for Trump's tax plan, while the nonpartisan Committee for a Responsible Federal Budget released a rough estimate that it could cost $3 trillion to $7 trillion over the next decade -- potentially “harming economic growth instead of boosting it.”

‘Exploding Deficits'

Larry Fink, chief executive officer of investment company BlackRock Inc., said on Friday that the tax proposals are unlikely to spur enough growth to reduce U.S. deficits, and would put the nation “on the path of exploding deficits.”

While Trump's one-page tax-plan outline didn't mention carried interest, a tax break that lets some investment managers pay lower tax rates than average workers, a White House official said on Thursday that the president plans to keep his campaign promise to end it.

Speaking on ABC's “This Week” on Sunday, Priebus concurred, saying hedge-fund managers and others hoping to keep that tax break -- by virtue of the fact it wasn't mentioned in the April 26 summary -- will be disappointed.

“The president wants to get rid of carried interest,” Priebus said. “So that balloon's not going to stay inflated very long, I can assure you of that.”

Democrats have been demanding that Trump release his tax returns as part of any tax overhaul to show how he might benefit. Priebus said when a routine audit of the president's taxes is over, “he will look at releasing his taxes.”

--With assistance from Ros Krasny and Lynnley Browning

To contact the reporter on this story: Mark Niquette in Columbus at mniquette@bloomberg.net.

To contact the editors responsible for this story: Joshua Gallu at jgallu@bloomberg.net, John Voskuhl