The Trump administration has proven incapable of drafting budget proposals free of multi-trillion-dollar math errors. Congressional Republicans are struggling to find the votes necessary to keep the U.S. from defaulting on its debt. The president and the Senate majority leader are locked in a bitter, personal, public feud.
Despite their inability to manage basic workaday governance, all involved still seem to believe that they can pass the largest tax cut in U.S. history as part of the first comprehensive tax-reform package in more than three decades.
On Monday, Politico announced that Trump’s tax team and the GOP leadership had made “significant strides” toward a blueprint for overhauling the tax system. These breakthroughs reportedly brought “relief” to the party’s corporate backers, who had been underwhelmed by the tax “plan” the White House had unveiled back in April (a single-page list of massive, regressive tax cuts that managed to be even less detailed than the proposal Trump had campaigned on).
So, of what did these “strides” consist? Given how Trumpcare’s failure highlighted the deep, ideological divisions within the congressional GOP — and Mitch McConnell’s perilously thin margin for error on partisan legislation in the Senate — one might think that progress on taxes would entail the trimming of sails and the counting of votes. Perhaps, the Trump administration had resigned itself to a modest, temporary reduction in the corporate rate, and convinced the House’s more ambitious reformers to go along. Or maybe the White House had sounded out the GOP’s least reliable votes in the Senate, and found a framework that Susan Collins — and Mike Lee — could both live with.
Alas, here’s the “progress” that Politico leads with:
There is broad consensus, according to five sources familiar with the behind-the-scenes talks, on some of the best ways to pay for cutting both the individual and corporate tax rates.
The options include capping the mortgage interest deduction for homeowners; scrapping people’s ability to deduct state and local taxes; and eliminating businesses’ ability to deduct interest, while also phasing in so-called full expensing for small businesses that allows them to immediately deduct investments like new equipment or facilities.
…The White House, Treasury Department and congressional leaders also have yet to resolve major philosophical questions, like whether a tax bill should add to the deficit and whether any tax cuts should be permanent, among other questions.
None of the “pay-for” options here are new. All have been under discussion since the beginning of the Trump administration. And, in Politico’s telling, all remain mere “options” — there is no consensus about whether any of them will actually be included in legislation.
In fact, after seven months in power, Trump’s GOP still doesn’t know whether it is trying to pass a temporary tax cut or permanent, deficit-neutral tax reform.
Or, put more precisely, the party still has not accepted that it is incapable of doing the latter. This is no small point. To evade a Democratic filibuster, Republicans are trying to reform the tax system through a budget reconciliation bill — special legislation that requires only a simple majority in the Senate. But reconciliation bills must abide by a host special rules, including a requirement that they not add to the deficit ten years after they’re passed. Thus, Republicans were only able to pass the Bush tax cuts by having them sunset after a decade.
Once the White House accepts that its appetite for cutting taxes on the rich is too great — and skill at governing too poor — to pass permanent, deficit-neutral reform, it can begin figuring out how large an increase in the deficit congressional Republicans are willing to stomach, and then set about drafting a tax plan that actually has the votes to pass.
But the administration and congressional leadership have yet to find such acceptance. And so, they’re apparently spending time debating whether they should try to impose a new tax on 401k contributions, or cap the mortgage-interest deduction, as if McConnell’s razor-thin majority were sturdy enough to withstand the backlash such provisions would surely inspire.
All that said, some House Republicans appear to be taking a more realistic (and nihilistic) approach to “offsetting” their desired tax cuts for the rich. As Bloomberg reports:
A growing number of key congressional Republicans are considering a controversial maneuver that would allow for about $450 billion of tax cuts without offsets, according to four congressional aides familiar with the discussions.
Under the proposal, the GOP would not account for things like expiring tax breaks when gauging the budgetary impact of tax legislation – giving tax writers more room for cuts. Senate budget and tax panels are discussing the move to a “current policy” baseline – instead of the standard “current law” baseline – said the people who asked not to be identified because the discussions are private. The chief House tax writer, Kevin Brady, also signaled openness to the approach last month, saying it would lead to deeper tax cuts.
The primary reason why Republicans chose to begin the Trump presidency with a politically perilous fight over health-care policy was that repealing Obamacare’s taxes would lower the “current law” baseline for revenue — and thus allow them to cut taxes even more radically in their subsequent legislation. But now they’ve realized they don’t actually need to throw poor people off Medicaid to execute that trick — they can just do some shady accounting, instead.
Permanent tax cuts are probably still out of the GOP’s reach, regardless of their budgetary gimmickry. But if the Trump administration is to pass any major legislation, it will need to follow the lead of these House Republicans, and concentrate on their party’s strengths: Passing tax reforms that disadvantage powerful interest groups isn’t one of them; drafting fraudulent budgets is.
