On the eve of the first 100 days of the new administration, the president has predicted a “massive tax cut,” that could be “bigger I believe than any tax cut ever.”
For the first three months, the campaign promise of across the board tax reform, business and personal, had remained illusory.
Yet now, there are fresh clues that it can be won before year’s end, despite the guileful opposition of the Democratic Party and its friends who write exciting columns.
The most important clue is that Treasury Secretary Steve Mnuchin has emerged as the administration leader, the Percival of the Cabinet, for overall tax reform and especially for business tax cuts.
“I think the president’s priority of tax reform is middle class income tax cuts, simplifying personal taxes, making our business tax system more competitive,” Mnuchin recently explained to the Financial Times.
“We have one of the highest corporate tax rates, combined with this concept of worldwide taxation and deferral. Which, not surprisingly, leads our companies to either be uncompetitive or leave trillions of dollars offshore.”
Even better, Mnuchin’s argument has a concrete goal. “Economic growth is our number one priority. The difference between 1.8 per cent GDP and 3 per cent GDP compounding is staggering. So, whatever issues we have in this country, growth helps solve a lot of those issues.”
Talk of growth is a Merlin elixir for the crankiest of Republicans. It makes them giddy. It even makes them trust the king for a little while.
Also Mnuchin certainly knows, as does his president, that recording a 3 percent GDP for any quarter between now and November 2018 will translate into significant Republican gains in the Senate and disheartening results for the Democrats in the House.
The Democratic leadership can see that far more crucial than sniping at the Republican imbroglio of repeal-and-replace is sabotaging the tax reform plan.
Senate Minority Leader Charles Schumer of New York has prepared for the Mnuchin-led offensive this summer by constructing a two-part IED.
The first part is the familiar class-warfare weapon that has unhorsed the GOP since 1930. “Anytime the president proposes something on tax reform,” said Schumer, “the average American is going to say, ‘Oh, he’s not doing that because it’s good for me, he’s doing it because it’s good for him.’”
The second part of Schumer’s weapon is more clever, a quid pro quo genius of electioneering. Schumer proposed that if the president “is serious about passing real tax reform to help the middle class, he should start by releasing his own full tax returns to erase any doubt of where his priorities lie.”
Yet the Democratic opposition is not profound. The Republicans have the votes and the time to start the reform entirely with GOP loyalists.
Heritage Foundation economist Steve Moore estimated at the first of the year that the tax reform package can get through Congress by the end of summer. Now, in the springtime, Mnuchin has moved the timeline to the end of the year.
What the Republicans lack is neither willpower nor timelines but rather Round Table unanimity.
For example, the first three components of the business tax cut—as designed by the prominent supply-side economics thinkers, Larry Kudlow, Art Laffer, and Steve Moore—are supported by the necessary Republicans votes in order to pass the House and Senate through reconciliation:
1. Reduce corporate and small business taxes from 35 percent to 15 percent. This will put the economy into a gallop.
2. Permit immediate full expensing of capital investments. This will allow start-ups to blossom.
3. Repatriate with a low-tax-rate up to $2 trillion in profits that are kept overseas to avoid the present corporate rate. This means jobs, jobs, jobs for the realm.
The major problem with the GOP tax reform plan so far is what is called border-adjustable tax. This is a tax on imports. It’s supposed to be necessary to accommodate Speaker Paul Ryan’s and President Trump’s aim for “revenue neutrality”—meaning the tax cut won’t add to the deficit.
Kudlow, Laffer, and Moore assert this is a solution that lacks a problem. The business tax cut will make the economy leap. Growth makes deficits vanish like Morgan le Fay.
Importantly, Mnuchin sounds unconvinced by the case for the border-adjustable tax, “It’s just one of many things we’re looking at.”
What’s most wrong with the border-adjustable tax, according to Kudlow, Laffer, and Moore, is that it is complicated—even more complicated than the personal tax reform challenges. Republicans like big ideas kept as simple to understand as Excalibur.
At the 100-day post, there is reason to imagine that the same mysterious forces that lined up Nov. 8, 2016, may be at play again:
Brexit to be followed by Trump to be followed by a French election first round Le Pen success to be followed by a repeal-and-replace deal in the House to be followed by serenading for Camelot’s business rate cut to 15 percent to begin in “The Merry Month of May.”