The politics of getting a tax-cut bill through Congress just keeps getting more complicated every day. As the House Ways and Means Committee continued to struggle with modifications of its bill, and the Senate Finance Committee prepared to release its first draft, outspoken right-winger Senator Ted Cruz tossed a hand grenade into the mix. Earlier this week, articulating the principle that not one taxpayer anywhere should wind up paying more taxes, he took the heretical position (for a heartland Republican) of opposing the elimination of tax deductions for state and local sales and income taxes. That deduction generally benefits financially comfortable folks in blue states like New York, California, and Connecticut. It’s also a key revenue element in making the tax bill’s math work.
“There are some taxpayers who are losing exemptions, particularly in some high-tax states like New York or California that could conceivably be paying higher taxes. I think that is a mistake. I think tax reform needs to cut taxes for everybody,” Cruz told reporters at a press conference Tuesday.
Most Republicans whose constituents are not directly affected by elimination of the state and local tax deductions are celebrating it as a strike against godless coastal liberal elites, and as a way to discourage high taxes. Cruz, perhaps more aware than most that wealthy people on the coasts are potential supporters and donors for presidential campaigns, is going the other way pretty hard.
Regional politics aside, designing a Senate tax bill that complies with the budget resolution’s demand of no more than $1.5 trillion in new deficits over ten years without going after SALT will be difficult. Even after taking into account the House bill’s compromise measure of maintaining a local property-tax deduction, killing what’s left of SALT saves $1.2 trillion. That would be a big hole to plug.
Cruz has one idea for recouping part of that revenue, as it happens, but it’s even more controversial than maintaining SALT: repealing Obamacare’s individual health-insurance-purchasing mandate. Donald Trump likes that idea. And so do Cruz’s influential right-wing colleagues Tom Cotton and Rand Paul:
Cotton endorsed the idea of attaching the individual mandate repeal to tax reform last week when he tweeted, “repealing mandate is itself a tax cut for working families!”
Cruz on Tuesday argued that the individual mandate hits 6.5 million Americans “who are predominantly lower and middle income.”
“It’s immediate relief for those 6.5 million Americans,” he said.
Senate Republicans discussed adding the provision at a lunch meeting on Thursday.
“I think there’s some movement on the Senate side,” Paul said after the meeting.
Trouble is, repealing the mandate only raises $400 billion, and at a cost of 15 million people losing health insurance and millions of others suffering from an average 20 percent boost in individual health insurance policies, at least according to a December 2016 Congressional Budget Office estimate. Republicans have asked for an updated estimate in the expectation that CBO will issue a more modest number for the negative impact on health insurance. But that will likely mean a more modest number for the deficit savings, as well, since the two issues are closely related (more people dropping out of the Obamacare insurance markets means less spending on tax credits for their premiums).
So including the mandate repeal could risk some Republican votes in both Houses, for not that much in revenues.
All in all, the math of the tax bill gets more difficult every time a Republican senator expresses an opinion. And it wasn’t going to be easy even had they all kept their mouths shut and gone along with the program.