Nunes Bill Seen as Big Influence in Republican Tax Plan

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By Kaustuv Basu and Aaron E. Lorenzo

July 27 — Reporters fishing for details in the weeks before House Republicans released their tax overhaul blueprint heard one thing almost constantly: Elements of a cash-flow tax plan that Rep. Devin Nunes (R-Calif.) had been talking up for years were being seriously considered.

Sure enough, when House Speaker Paul Ryan (R-Wis.) and House Ways and Means Committee Chairman Kevin Brady (R-Texas) officially unveiled the plan June 24 in the Capitol’s Rayburn Room, it turned out to be a consumption tax model with full expensing (123 DTR G-6, 6/27/16).

Nunes, a high-ranking Ways and Means member, stood nearby, explaining the similarities between the GOP blueprint and his American Business Competitiveness Act (H.R. 4377). “Our blueprint, which includes the key elements of my ABC Act, encourages business investment by allowing for 100 percent, immediate expensing of business investments,” he said in a blog post the same day.

Although questions remain on how much the plan would actually boost the economy and how exactly it will deal with the issue of border tax adjustments, the blueprint is being promoted as an unconventional and bold move by Nunes, a long-time champion of a consumption tax model, and others.

Decade-Long Quest

Nunes has been looking at the consumption tax model for more than a decade.

Sitting in his personal office recently, just before lawmakers departed for an extended recess through Labor Day, Nunes readily recalled one of his key influences: the late David Bradford, a Princeton University economist who led the thinking on consumption taxes for years.

Nunes and Ryan looked at fair and flat tax proposals and other ideas such as a consumption tax model suggested by President George W. Bush’s tax overhaul panel in 2005.

Nunes met with several economists. In 2012, he started promoting a draft version of the ABC Act (200 DTR G-2, 10/17/12).

“Many macroeconomists recognize consumption taxes as the best tax system for encouraging capital investment and economic growth,” he said in an October 2012 opinion piece in the Washington Post.

By the time Ryan formed a tax task force this year, the idea of a cash-flow tax had become much more acceptable. “I think this is the best system that you can implement that won’t disturb the systems and mechanisms we have in place as a government,” Nunes said.

Personal Experience

Nunes said his experience as a businessman informed some of his decisions when it came to his bill.

He started in farming and now has a limited partnership in the wine business.

“It is very hard for one to start a business. And then you make decisions based off the tax code, not based off what is the best use of your income,” Nunes said.

Among his Republican colleagues, Nunes, who has been in Congress since 2003, is seen as an old-style conservative not averse to taking on the House Freedom Caucus, a group of about three-dozen Republicans who pushed out former speaker John Boehner (R-Ohio) and now want to impeach Internal Revenue Service Commissioner John Koskinen.

In 2013, he famously described some colleagues who preferred a government shutdown as “lemmings with suicide vests.”

The Economists

Douglas Holtz-Eakin, president of the American Action Forum, said he talked to Nunes over the years about the idea of a consumption tax.

“So when Devin asked me to take a look at his tax plan, I thought it was a tremendous and refreshing moment,” said Holtz-Eakin, who studied under Bradford at Princeton. “I think he deserves a lot of credit for someone who is not the chairman for having a tremendous impact on the debate.”

One reason there is more appetite for a consumption tax plan now is the willingness of the political system to try a bold proposal that targets “poor growth,” Holtz-Eakin said.

The tax overhaul plan from former Ways and Means chairman Dave Camp (R-Mich.) took the status quo seriously and tried an incremental approach—and that didn’t work, Holtz-Eakin pointed out. “Why not try something bold,” he said.

Alan Viard, a resident scholar at the American Enterprise Institute and co-author of “Progressive Consumption Taxation: The X Tax Revisited,” said Nunes accepted the argument from him and several others that full expensing of investment was desirable policy.

“The bill reflects that, the blueprint reflects that,” he said.

Viard said he was surprised by the interest that a consumption tax idea has generated among lawmakers.

One reason could be the Tax Foundation’s new dynamic scoring model. “The model gives a lot of credit in terms of economic growth to plans that have expensing,” he said.

A Few Estimates

Full expensing to reduce the cost of capital would boost economic growth like no other tax benefit, according to an estimate released last month by the Tax Foundation.

The right-leaning group, which has been scoring lawmakers’ bills as well as issuing its own projections on various proposals, forecast a long-term increase in U.S. gross domestic product of 5.4 percent and more than 1 million new jobs from full expensing.

It would cost $881 billion in federal revenue over a decade, based on dynamic analysis from the Tax Foundation.

Full expensing would produce some of the biggest economic benefits for each dollar of lost revenue since all that red ink would get applied to reducing taxes on new capital and encouraging business investment, the Tax Foundation said.

In a January analysis, the group found that Nunes’ ABC bill would expand the economy by 7.3 percent over 10 years, increasing investment by 22.1 percent and adding 1.4 million jobs.

All that growth would be driven primarily by two elements in the Nunes bill—full expensing and a 25 percent tax rate on business income.

The House Republican blueprint includes the same treatment for capital investments but would tax business income slightly differently: 20 percent for corporate income and 25 percent for passthrough income.

Staying on Track

Even the economists who look favorably on the blueprint said almost anything could throw it off track.

“The Tax Reform Act of 1986 died three times before it passed and everything else has died more since then,” Holtz-Eakin said.

Viard said the question of whether a plan such as the blueprint can be marketed to the general public hasn't been answered yet. “I think the general public is not really anxious for corporate tax reform,” he said. “Policymakers will need to make their case.”

Joseph Rosenberg, a senior research associate at the Tax Policy Center, said a consumption tax model would likely be pursued if Donald Trump wins and the Republicans have legislative control. “Most of the traction is on the Republican side,” Rosenberg said. “Yes, they are changing the base and there is arguably a lot more room for even bipartisan agreement for just the base switch from income to consumption but it is also true there is a lot else going on with these bills in terms of what they do to overall revenue and how they tax different forms of income.”

The Way Forward

Nunes admits that the GOP blueprint will eventually have to be sold by a presidential candidate. Trump’s plan was going to morph and look more like the blueprint, he said. “People that have built their business off the tax code, yeah, they are going to complain,” Nunes said.

“But I don’t know that you are going to have much mercy here in Congress for that argument.”

Nunes is optimistic about bipartisan support. “The guys on the left, they might want the rate higher,” he said, but this is the “only way to get fairness in the system.”

To contact the reporters on this story: Kaustuv Basu in Washington at and Aaron E. Lorenzo in Washington at

To contact the editor responsible for this story: Cheryl Saenz at

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