Texas Sen. Ted Cruz, who often represents the right flank of the Senate’s Republican caucus, entered the budding tax reform debate Wednesday by issuing a call for a net tax cut and for allowing businesses to immediately write off the costs of all new investments.
“Tax reform should not be revenue-neutral,” Cruz said a lunch event hosted near Capitol Hill. Instead, it should be a major tax cut.
Although he laid out a detailed tax reform plan during his presidential campaign, Cruz had not previously engaged in the joint effort by the Trump administration and congressional Republican leaders to arrive at a plan for tax legislation.
On Wednesday, Cruz sketched out a vision that mostly aligns with what the White House and GOP leaders have hinted at: Lower rates for individuals and businesses, simplifying the tax code, bringing back corporate profits stashed overseas, and eliminating the estate tax.
But he weighed in on two matters that divide conservatives.
One is that he doesn’t favor a revenue-neutral tax reform, which some leaders say is necessary to make tax reform permanent. Instead, he backs a workaround, promoted by Sen. Pat Toomey, R-Pa., that would allow a net tax cut that would be temporary, but would be in place for so long that it would effectively be permanent. Using the same partisan parliamentary procedure, he said, Congress also should seek to roll back the post-financial crisis rules on banks.
Members of the House Freedom Caucus also have called for the tax plan to cut taxes on net.
But Cruz also focused on his support for “full expensing,” another measure that divides conservatives.
Full expensing refers to the policy of allowing businesses to deduct the cost of new capital, such as real estate, machines or technology, in the year they are bought. Under the current code, companies are required to write off those costs according to complicated schedules that vary based on what the expenses are and, in many cases, require depreciation over a number of years.
Many economists believe that full expensing would boost economic growth, even more than lowering tax rates would, by encouraging new business investment.
On paper, though, it would be costly to the federal government. One estimate, from the Tax Foundation think tank, places the price tag at about $2 trillion over 10 years. That cost is comparable to the major corporate tax rate reduction that the GOP hopes to secure.
For that reason, some groups aligned with the Republicans on tax reform have advocated pursuing rate reductions rather than full expensing. For example, Americans for Prosperity, the free-market group affiliated with the Koch brothers, has counseled Republicans not to privilege expensing in the eventual tax bill.
House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady, meanwhile, favor full expensing, a key component of the “Better Way” tax reform plan they ran on last year.
The Trump administration, though, has said full expensing is “not the hill we want to die on,” and the idea faces some skepticism in the Senate.
On Wednesday, Cruz sided decisively with Ryan and Brady.
He portrayed the idea of full expensing as one that pits working people — farmers, waitresses, and steelworkers who would benefit from new factories or equipment – against the financial industry.
And he dismissed the idea of allowing companies faster depreciation schedules, rather than full expensing, a compromise hinted at in the joint statement on taxes put out by the administration and congressional leaders in July.
Cruz described that as a half-measure and warned that it would allow future Congresses to tweak the schedules to raise more revenue from businesses to pay for new spending.
This post originally appeared on Washington Examiner