Donald Trump let Congress take the lead on health care. And House Republicans proceeded to craft a bill that they weren’t willing to vote for.
So as Republicans turned to tax reform, the president kicked Paul Ryan out of the driver’s seat — but he also decided to rip up the directions that his campaign aides had prepared. And now a car full of backseat drivers is shouting conflicting instructions at a highly impressionable senior citizen who has lowered his speed to 10 miles an hour, in hopes of concealing the fact that his failing eyes can barely make out the road in front of him.
Or so the Associated Press’s latest dispatch on the White House’s tax plan would seem to suggest:
President Donald Trump has scrapped the tax plan he campaigned on and is going back to the drawing board in a search for Republican consensus behind legislation to overhaul the U.S. tax system. … Some view the search for new options as a result of Trump’s refusal to set clear parameters for his plan and his exceedingly challenging endgame: reducing tax rates enough to spur faster growth without blowing up the budget deficit. Administration officials say it’s now unlikely that a tax overhaul will meet the August deadline set by Treasury Secretary Steve Mnuchin.
At least the White House is totally clear on its political strategy: According to the AP, “administration officials have signaled that they want to pass tax legislation with only Republican votes.”
So, naturally, one of the administration’s newest ideas is “a drastic cut to the payroll tax, aimed at appealing to Democrats.”
Confusion is understandable.
The president reportedly wants to “cut tax rates sharply enough to improve the economic picture in depressed rural and industrial pockets of the country where many Trump voters live.” Doing so would require cutting taxes for middle-income households. But the cornerstone of virtually every Republican tax plan that’s been introduced in Congress — or on the campaign trail — is a giant tax cut for the rich. And if you want to pass revenue-neutral tax reform, you can’t really do both.
Case in point: Paul Ryan’s tax plan restricts its benefits to the country-club set, delivering 99.6 percent of its relief to the one percent. This leaves the House speaker with a “mere” $3 trillion hole to fill, to be accomplished by levying new taxes on Americans who lacked the personal responsibility to invest in Republican campaigns or lobbying firms.
By contrast, the plan Trump campaigned on would have delivered a modest 50.8 percent of its gains to the one percent. But since the GOP nominee wanted to cut the middle class in on the deal without reducing returns to his friends at Mar-a-Lago, his proposal would have increased the national debt by $7 trillion over ten years.
For decades, the Republican Party’s top priority in tax reform has been to “permanently” reduce their donors’ annual dues to Uncle Sam. Since such a proposal can’t garner Democratic votes in the Senate, they need to pass it as a budget-reconciliation bill — a type of legislation that requires only 50 votes in the upper chamber, but which is statutorily prohibited from increasing the deficit ten years after it is passed. This means that if Republicans don’t want to sunset their tax cut for the rich after a decade — as they did under George W. Bush — they need to make up revenue somewhere else in their plan. Which means they need to raise taxes on the not-rich.
This problem haunts one of the few halfway-decent ideas the White House is currently considering. As the AP reports:
One circulating this past week would change the House Republican plan to eliminate much of the payroll tax and cut corporate tax rates. This would require a new dedicated funding source for Social Security.
The change, proposed by a GOP lobbyist with close ties to the Trump administration, would transform [GOP congressman Kevin] Brady’s plan on imports into something closer to a value-added tax by also eliminating the deduction of labor expenses.
This would bring it in line with WTO rules and generate an additional $12 trillion over ten years, according to budget estimates. Those additional revenues could then enable the end of the 12.4 percent payroll tax, split evenly between employers and employees, that funds Social Security, while keeping the health insurance payroll tax in place … This approach would give a worker earning $60,000 a year an additional $3,720 in take-home pay[.]
Since the payroll tax is only levied on the first $127,200 of income, replacing some (or all) of it with a consumption tax that everyone, including the exorbitantly wealthy, would pay into could make the tax code more progressive. It would, of course, require a new, dedicated funding mechanism for Social Security. But there are wonks with ideas on that subject.
The trouble is, House Republicans were already struggling to find alternative revenue sources to fill the gaps that their desired reductions to individual and corporate tax rates would produce. Getting congressional Republicans to vote for a new national sales tax is probably a quixotic dream; getting them to vote for one as part of a package that doesn’t include large tax cuts for the rich is a hallucinatory fantasy.
The easiest play for Trump would probably be to throw up his hands and do his own version of the Bush tax cuts. But even if his package doesn’t have to be revenue-neutral, he’ll still have a hard time convincing his party to add a full $7 trillion to the deficit. Which means he may not be able to do all that much, in the end, for middle-income workers.
This could be a bigger liability for Trump than it would be for your average GOP president. Most Republicans don’t campaign as anti-establishment populists, constantly brag about their personal wealth, and refuse to let the public see their tax returns. Together, these actions make it exceptionally easy for Democrats to brand any regressive tax plan as proof that Trump is just in this for himself. Liberal groups are already using that message to kick Trumpcare while it’s down.
Nobody knew tax reform could be so complicated.