A FINE MESS
How the GOP Painted Itself Into a Corner on Tax Reform
Today we’ll probably find out whether Senate Republicans can salvage this thing. If they can’t, here are the underlying reasons why.
The Republican effort to pass tax reform—an effort that I viewed as the most likely of their legislative priorities to be successful in terms of politics and policy—looks to be careening off a cliff.
The first major blow came from the Joint Committee on Taxation’s nonpartisan analysis that projects that any growth that might occur as a result of tax cuts wouldn’t be enough to stop a ballooning deficit. This was a damning analysis because, also on Thursday, the Senate parliamentarian also rejected Senator Bob Corker’s scheme to insert a “trigger” mechanism to raise taxes in case the tax cuts were a complete dud.
Senate Republicans are now left with a huge problem and no obvious mechanism to address it.
According to The New York Times, “Lawmakers are now considering alternatives, including reinstating the alternative minimum tax on some corporations and wealthy individuals, and raising the corporate rate above 20 percent after some number of years. A final vote on the bill is expected Friday after a series of amendments are considered.”
If Republicans aren’t careful, this tax plan will actually turn out to be a tax hike plan.
Republicans are now caught in a Catch-22-type situation: Economic policies that conservatives earnestly believe would grow the economy seem unlikely to pass. So the solution is to, what, pass something they know will be unpopular and ineffective—just to put points on the board?
Even before Thursday, there was reason to doubt the Senate could pass a bill that complied with supply-side philosophy. The trigger mechanism, for example, was criticized by supply-siders who pointed out that economic growth comes when businesses and individuals can plan on tax cuts.
Having a Sword of Damocles hanging over our heads would serve as a self-fulfilling prophesy, guaranteeing there wouldn’t be a stimulative effect.
Maybe this will all work out, but increasingly, this looks like another mess. So how did we get here?
First, we have to concede that any plan to change things will face opposition—both from people who sincerely disagree on philosophy grounds and from those who simply want to deprive the other side of a legislative victory. It’s easy to decry “tax cuts for the rich,” but according to the Tax Foundation, the United States has the highest corporate tax rate in the developed world—and the third highest in the entire world.
The devil’s in the details, but I’m sympathetic to the notion that creating a more competitive business environment could spur growth.
Second, we have to concede that the process has been ugly. Nobody likes backroom deals where last-minute ideas whose consequences haven’t been thought through or tested end up in legislation. We would prefer a more transparent, deliberative, and bipartisan process, with committee hearings and amendments.
But this messy process is, in my estimation, a symptom of some larger (though, not irrational) assumptions Republicans made in the wake of Donald Trump’s election.
The first assumption is that legislative priorities should be done via reconciliation. On the surface, this makes strategic sense. Except, it hasn’t worked out. Republicans might have crafted a plan that would have garnered the support of red-state Democrats—or, at least, put pressure on them to back tax cuts. This would have made it harder to attack on partisan grounds, and it would have removed some of the leverage that Republican senators have to demand changes (as it stands, every Republican senator effectively has a veto).
The second deadly assumption is that we as a nation simply do not have the will or the ability to tackle spending to offset some of the lost revenue from tax cuts. Back in October, White House Budget Director Mick Mulvaney literally said “we need to have new deficits.” He also seemed to suggest that spending cuts were off the table, explaining to Meet the Press host Chuck Todd that “I had come to Washington in 2011 and had hoped that would be the case, that we had a spending problem and not a revenue problem.”
Both of these Republican assumptions were based on a certain amount of historical evidence (for whatever reason, spending cuts never seem to actually materialize), but they also constitute the triumph of cynicism over hope.
Hope and change made for a nice slogan. Hopelessness and change? Not so much.