McConnell, Warning of ‘Dangerous’ Debt, Wants Tax Cut Offsets

  • Senate leader also opposes $1 trillion infrastructure stimulus
  • Deficit hawks have warned Trump’s proposals would add to debt

WASHINGTON, DC - JULY 08: U.S. Senate Majority Leader Sen. Mitch McConnell (R-KY) (R) speaks as Sen. Lamar Alexander (R-TN) (L) listens during a news briefing July 8, 2015 at the U.S. Capitol in Washington, DC. Senate GOPs held their weekly policy luncheon to discuss Republican agenda.

Photographer: Alex Wong/Getty Images

President-elect Donald Trump’s race to enact the biggest tax cuts since the 1980s went under a caution flag Monday as Senate Majority Leader Mitch McConnell warned he considers current levels of U.S. debt “dangerous” and said he wants any tax overhaul to avoid adding to the deficit.

“I think this level of national debt is dangerous and unacceptable,” McConnell said, adding he hopes Congress doesn’t lose sight of that when it acts next year. “My preference on tax reform is that it be revenue neutral,” he said.

During a news conference, McConnell also poured cold water on the idea of a massive stimulus package, effectively laying out markers on taxes and spending that that could cramp Trump’s ambitions.

The Committee for a Responsible Federal Budget, a nonpartisan think tank, has projected that Trump’s plans would increase the debt by $5.3 trillion over a decade, with deficits already over $600 billion a year and rising on autopilot.

If Trump achieves the plans he has laid out, “the deficit’s going to be a lot higher than expected, at least in the short term,” said Stan Collender, a budget expert and former Democratic congressional aide. It could rise to $1 trillion per year for four years, he said.

As for Trump’s infrastructure plan, touted as costing roughly $1 trillion but with more than 80 percent of the financing coming from the private sector, McConnell said he’s looking forward to seeing the details.

“What I hope we will clearly avoid, and I’m confident we will, is a trillion-dollar stimulus,” he said. “Take you back to 2009. We borrowed $1 trillion and nobody could find that it did much of anything. So we need to do this carefully and correctly and the issue of how to pay for it needs to be dealt with responsibly.”

One interesting wrinkle is that Trump has named McConnell’s wife -- former Labor Secretary Elaine Chao -- to head the Department of Transportation, which would likely make her one of his point people on any infrastructure package.

Debt Limit

The debt limit will need to rise next year to avoid defaulting on government obligations; McConnell said he wasn’t sure if that would be paired with any deficit-reduction measures next year as it was in 2011, when Republicans held the debt limit hostage and extracted more than $2 trillion in deficit cuts over a decade from President Barack Obama.

House Speaker Paul Ryan has also said he wants tax changes to be deficit-neutral, indicating that Republicans will assume positive macroeconomic benefits from tax cuts to ease the projected budgetary hit -- a process known as dynamic scoring that is popular on the right.

McConnell offered little specificity on changes to Obamacare, saying the Senate would kick off the new year with an Obamacare resolution and then start working on a replacement.

Simply waiting wasn’t an option, he said.

“The notion that we could do nothing and allow the current law to implode is unacceptable,” McConnell said. “So, I hope no one believes no action is possible or appropriate.”

That replacement process could take as long as three years, according to Republican senators, although some conservatives, particularly in the House, want a much faster timeline.

In the short term, eliminating all of Obamacare -- including its taxes and Medicare cuts -- would add to the deficit, the Congressional Budget Office concluded in 2015.

Before the election, McConnell had said he hoped to work on limiting eligibility for programs like Medicare and Social Security if Hillary Clinton was elected. He didn’t repeat that call Monday.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE