Perry Bacon (fivethirtyeight.com) is pessimistic about the chances for a tax
reform break passing the Congress. Here’s why: The GOP Had One Big Divide On Health Care. It Has Three On Taxes..
This one has been on my to-do list for a while, so now snippets follow with some new reporting on what our own Southern Arizona Rep. wants to do to us.
Remember how divided Republicans in Washington were on their plans to repeal the Affordable Care Act? Well, they are even more divided so far on their push to change America’s tax system — a bad sign for a party desperate for a big achievement in a year in which they control both houses of Congress and the presidency.
With taxes … there are three dimensions on which key figures in the party disagree:
- How much does increasing the deficit matter?
- Is it temporary tax cuts or permanent tax reform?
- Who gets the cuts?
I’ll (briefly) unpack each one.
The deficit matters …
… even though Dick Cheney didn’t think so.
This divide is fairly similar to the main fault line on health care, pitting the most conservative members of the GOP, like the Freedom Caucus, against more traditional establishment Republicans such as Tennessee Sen. Bob Corker, an increasingly sharp critic of President Trump. I emphasize Corker because he has been the most vocal Republican in insisting that the party’s tax plan not increase the federal budget deficit. …
Freedom Caucus members, meanwhile, are pushing for a big tax cut on corporations and small businesses, and placating them is important, since they initially blocked the Obamacare repeal. … The draft proposal released by congressional leaders and Trump last month included a 20 percent corporate rate, and the Freedom Caucus has praised it.
But an estimate by the Tax Policy Center of the draft proposal suggested that it would reduce federal revenue by $2.4 trillion over 10 years and $3.2 trillion over the following decade. So the draft is not addressing Corker’s concerns. And Trump’s attack of Corker via Twitter on Sunday could further embolden the Tennessee senator; he now has the opportunity to play a leading role in killing a cherished policy goal of a president he seems to loathe.
In that, Corker may have a powerful ally in our own Senator McCain. (Remember how Trump likes people who weren’t captured? Remember thumbs down on the last senate attempt at ACA repeal?)
The trio that opposed the Obamacare repeal (Arizona’s John McCain, Alaska’s Lisa Murkowski and Collins) has been circumspect so far on the tax plan. But if they align with Corker, this is a huge barrier.
Temporary cut or permanent “reform”?
… a simple tax cut that increases the deficit may be easier to pass in the short term because Congress wouldn’t have to raise taxes on anyone. But in the long term, the entire policy might go away. House Ways and Means Committee Chairman Kevin Brady has emphasized that he wants the tax cuts to be permanent, as has Ryan.
Here’s the problem: The draft Republican plan would raise a lot of people’s taxes. Estimates from the Tax Policy Center suggest that limiting tax deductions and going from seven tax brackets to three would cause tax increases for about 12 percent of taxpayers,1 including a third with incomes between $150,000 and $300,000, who would pay on average $1,800 more in taxes. The Institute on Taxation and Economic Policy, which is affiliated with the left-leaning Citizens for Tax Justice, estimates that about 17 percent of U.S. taxpayers would pay more under the GOP draft.
The sound you hear from Capitol Hill is a squawky “Oops!”
And Ryan doesn’t only have to worry about GOP members from high-tax states. Trump has reportedly told GOP allies that he thinks the party should define this policy as tax cuts, not tax reform. It’s not clear he cares that much if this tax policy will be around in, say, 2027, when he will be long gone from the White House.
Make that tax cuts for the wealthy and tax “reform” for the rest of us.
So who wins, who loses?
Beyond the debate over how big a tax cut the GOP should pass, there are disagreements in the party about which Americans should get the cuts.
I haven’t seen any Republicans explicitly call for tax cuts that disproportionately go to the rich (doing so might be a bit politically risky), but their draft tax proposal does exactly that. Some Republicans, though, are pushing for a less regressive plan.
For example, Rand Paul.
Kentucky’s Rand Paul, one of the key roadblocks for Republicans in the Obamacare repeal effort, is now blasting the draft tax plan, arguing that “it just should not be a tax hike on anyone.” …
It’s not clear if [Mike] Lee, Paul or [Marco] Rubio have tax increases they favor to make up for the additional tax cuts they want. So this stance is likely to make this proposal even worse in terms of deficit reduction, cutting against the goals of Corker (deficit neutrality as a policy ideal) and Brady and Ryan (permanent tax cuts).
What, if anything, is likely to survive these divides?
I’m not doing a whip count of which members are likely to vote for this proposal, in part because Republicans in Congress are still writing it and its contours could change dramatically, in ways that address some of these tensions.
But even more so than on health care, Republicans are trying to write a bill that reconciles a bunch of competing goals from their members.
I’m not saying it will be harder for Republicans to pass some kind of tax policy than repealing Obamacare. The GOP always has the option of shifting to a tax policy that cuts taxes for almost everyone, doesn’t raise them on anyone, increases the deficit and isn’t permanent, the approach George W. Bush took in 2001. This might irritate Corker, but I suspect the coalition of congressional Republicans who will vote against a tax policy that increases taxes on millions of middle-class people is larger than the group that will oppose a policy because it increases the deficit too much.
Right now, though, Republicans have a tax policy that increases taxes on the middle class and also increases the deficit. That is going to be very hard to pass.
But not for wont of trying. Here at home CD2 Rep. Martha McSally has taken to the road defending voodoo economics. You know, cutting taxes will magically increase revenues. I thought she was not that dumb. It’s Kansas, Toto! Remember when KS Gov. Sam Brownback tried to substitute brownbacks for greenbacks? It didn’t work out so well for Kansas.
In spite of counter examples, Daily Star writer Joe Ferguson reports on McSally’s beliefs that Trump’s tax proposal would help local businesses, middle class. That would be an “Oops”. Anything that is branded Trump is immediately suspect. The proposed tax breaks will be a huge windfall for folks in the Trump bracket but not for the rest of us. Moreover, it will balloon the deficit.
But, apparently from the reporting, those are not the issues discussed by McSally with the local business leaders - unless they were discussed in private.
U.S. Rep. Martha McSally signaled her support Tuesday for President Trump’s tax proposal, saying it represents a once-in-a-generation opportunity to simplify the country’s tax codes.
Sitting in her Tucson office and flanked by business leaders she had met with privately for 90 minutes, the two-term Republican stressed the proposal is still in the most nascent of stages as lawmakers wrestle with core concepts.
She outlined her goals for tax reform, saying she wants to help the middle class with tax cuts, help small businesses grow, simplify the entire tax code and reset the tax code so that the United States can compete globally for new and growing businesses.
And how to pay for all that was high on the list, right? Well …