The Boehner Jobs Agenda: Tax Reform Yes, State Aid No

One week after the President unveiled the American Jobs Act, House Speaker John Boehner delivered an address before the Economic Club of Washington outlining the GOP’s Plan for America’s Job Creators.  While the President’s $450 billion plan relies on a 60/40 mix of tax measures and new spending to stimulate job growth, Speaker Boehner’s proposal rejects short-term spending in favor of a three-pronged agenda of long-term tax reform, deregulation, and reduced government spending. 

Boehner explained that his plan is designed to provide job creators with the confidence they need in the rules of the road, both in terms of tax policy and regulatory action, and in America’s long-term fiscal health to persuade them to risk their capital, expand their operations, and hire more workers. 

Both the Speaker and the President have proposed changes to the tax code that could have a long-term impact on state governments.  The President’s proposal funds short-term spending by curtailing a host of tax exemptions for wealthier Americans, including limiting tax deductions on municipal-bond interest.   Speaker Boehner has also pledged to reduce tax deductions, but the savings generated would be used to cap overall tax rates both for businesses and individuals to no more than 25% rather than to fund new expenditures.  Should the President’s revenue measures be passed, or if the bond interest deduction were included in the Speaker’s rate reduction reforms, it could substantially increase state borrowing costs for roads, schools, and other infrastructure projects by adding as much as 100 basis points (1%) to state bond yields (CSG will release a full analysis on this provision next week).

On the other hand, deregulation has emerged as an area of potential cooperation.  The Speaker identified 219 proposed regulations that would have an impact of $100 million or more on the American economy.  He praised the President for halting a proposed smog regulation estimated to cost the private sector as much as $90 billion to implement.   In addition, both the President and the Speaker are committed to addressing a little known, but cumbersome, requirement created by the 2006 Tax Increase Prevention and Reconciliation Act for state and local governments to withhold 3% from all vendor payments.  The requirement was set to take effect this year, but the deadline was delayed to 2012 by the Recovery Act.  The President’s plan would delay implementation until 2014 while Boehner’s plan would eliminate it entirely.

It is on expenditures where there is the clearest divide.  The American Jobs Act includes roughly $200 billion in new spending with over half of it set to flow through state and local governments in the form of increased infrastructure and education spending.  Speaker Boehner made no commitment to increase short-term spending arguing that his first priority is to reduce the cost of the federal government both through entitlement reform and by reigning in discretionary accounts.  He did, however, mention that short-term spending cuts need not be draconian as our biggest challenge is over the long-term.  He also indicated that infrastructure spending was a priority for him and that he wants to link passage of a long-term highway bill to the expansion of domestic energy production. 

While the Speaker’s approach is fundamentally different to the short-term measures included in the American Jobs Act, he has committed to bring the President’s bill up for a vote in the House.   This sets the stage for a series of debates in both the House and Senate as the chambers take up the two competing plans.  However, with divided control of Congress neither plan will pass both chambers on its own.  As a result, both the President and Speaker Boehner are looking to the Super Committee to advance key aspects of their plans.