To veterans of the fiscal wars in Washington, there’s something extremely familiar about the dynamics of Republican thinking when it comes to the “tax reform” bill that has been on the agenda all year. Tax reform — the idea of tax cuts “paid for” by closing “tax loopholes” — is quickly turning into simple tax cuts. To the extent there is interest in “paying for” tax cuts, most GOP lawmakers favor domestic-spending cuts, and especially the ever-popular-among-conservatives, ever-unpopular-among-Americans entitlement cuts. If spending cuts cause too much political heat, eventually Republicans choose unpaid-for tax cuts, even as they hand conservative-base voters an IOU for future spending cuts.
In a way that was what the GOP tried in the recently discarded House and Senate health-care bills, which cut Obamacare taxes while imposing Medicaid cuts that many conservatives feared would never be implemented.
This cycle has been repeating itself literally for more than three decades. In 1981, when Ronald Reagan’s budget director, David Stockman, stumbled on the legislative packaging device known as “budget reconciliation” and crammed the new administration’s entire agenda into two bills, he started off hoping for a modest tax-cut bill with loophole-closing reforms offsetting some of the lower rates. His hopes were soon dashed, and he famously conceded that “the hogs were really feeding” when it came time to enact a revenue bill. Alarmed by the deficit implications of the tax bill, Stockman hoped Republicans would have the courage to pay for the tax cuts with spending reduction. And he was ultimately disappointed when the GOP couldn’t summon the political will to seriously mess with Social Security, Medicare, farm subsidies, and other big spending items.
The next big lesson about GOP fiscal priorities occurred in 1990, when George H. W. Bush imperiled his political future and motivated a whole generation of conservative insurgents by signing a budget deal aimed at reducing unprecedented budget deficits via tax increases, violating a famous 1988 campaign pledge never to support higher taxes. So by the time the next Republican president, Poppy’s son, took office, tax increases were completely off the table in terms of deficit-reduction measures. This is why the 2001 and 2003 Bush tax cuts were passed with no pretense they would do anything other than worsen the fiscal situation.
A parallel legacy of the George W. Bush years was that the GOP formulated a theory to rationalize pursuing tax cuts without any offsetting them, called “starve the beast.” As Bruce Bartlett explained in 2007:
Instead of being viewed as the height of fiscal irresponsibility, cutting taxes without any corresponding effort to cut spending was now seen as the epitome of conservative fiscal policy. Trying to cut spending in isolation was both doomed to failure and counterproductive because focusing attention on the deficit was more likely to lead to increasing taxes and thus expanding the size of government. The only way off the treadmill of higher spending leading to higher taxes leading to still more spending was to refuse to play the game. Just cut taxes, the conservative intelligentsia now argued, and concern about deficits will be channeled into lower spending.
I once described the political allure of “starve the beast” as offering conservatives the fiscal equivalent of a bottomless crack pipe, giving them the incentive to promote tax cuts without any responsibility to pay for them via revenue measures or spending cuts. A similar temptation could be developing today as Republicans begin with talk of deficit-neutral tax reform but could end up with pure tax cuts.
Now it is true that once — exactly once — in all the modern history of GOP tax-cutting measures has there been a genuine tax-reform effort aimed at broadening the tax base by eliminating loopholes and using the savings to lower rates. That was the bipartisan tax-reform miracle of 1986, enacted by a Democratic House and a Republican Senate and signed by Reagan. But as my colleague Jonathan Chait has explained, conservatives spent the subsequent 20 years trying with considerable success to undo that miracle since it raised effective tax rates on the wealthy.
This checkered history is why it is so significant that Republicans manifestly intend to enact tax legislation this year not via the bipartisan path of 1986 but via the same budget-reconciliation process they relied on in 1981 and in 2001, designed to outlaw filibusters and sideline Democrats. Indeed, Mitch McConnell made the implications for “tax reform” clear, saying “I don’t think this is going to be 1986, when you had a bipartisan effort to scrub the code.”
Instead, Republicans will use the budget process to “set up” a tax bill, which drives the discussion in two very important ways. First, Republicans will need all but two of their senators on board, which makes any loophole-closing measures that are controversial (and most are controversial) politically unfeasible, since loophole-defending lobbyists need only find three GOP senators to shut it all down. And second, the budget process makes it much more feasible to go for domestic-spending cuts — which have a 24/7 constituency among conservatives in both congressional chambers — rather than any revenue measures to mitigate the damage to the nation’s fiscal health. The appetite for going after entitlement programs is more intense than ever after the failure to enact a Medicaid per capita cap as part of the GOP health-care bill (a spending cut that never had a thing to do with Obamacare).
And as we’ve learned again and again, if the political climate is too hot for controversial spending cuts, then Republicans can always try once again to “starve the beast” by passing unpaid-for tax cuts and kicking the deficit-reduction can on down the road. So don’t let the talk of tax reform — or even paying for tax cuts — fool you. In the end, only the tax cuts matter to the GOP.