The Republican Party’s “middle class tax cut” plan has a minor problem: It actually raises taxes on much of the middle class. Tax experts and progressive think tanks have been trumpeting this inconvenient truth for weeks. But now, Congress’s own Joint Committee on Taxation has confirmed this finding, making it far more difficult for Republicans to ignore.
According to the JCT, if the Republican plan passses, one-fifth of American households will pay higher taxes in 2027. While more middle-class families would be helped than hurt by the GOP plan, the fact that any will wind up forking over more money to Uncle Sam — while the super rich and corporate America collect trillions in benefits — is a political migraine for Trump & Co.
And that headache is going to get worse before it gets better. To finance a 15 percent cut in the corporate tax rate, House Republicans have already signed on to revenue-generating measures that would weaken the real-estate market, hurt orphans, disadvantage the disabled, hobble research on cures for rare diseases, make it harder for veterans to find jobs, soak upper-middle-class voters in blue states — and, thereby, put their caucus’s most vulnerable members at grave political risk.
But even after biting all these bullets, the party still needs to find hundreds of billions in new revenue, just to make their plan technically passable. (Under the rules of budget reconciliation — the special process that would enable Republicans to pass tax cuts through the Senate without Democratic votes — the GOP plan can’t add to the deficit ten years after it’s passed.)
The House bill’s unpopular middle-class tax hikes — and unworkable math — has Senate Republicans demanding mutually exclusive changes to the existing legislation. The Senate GOP’s official tax writers are (reportedly) planning to eliminate the state and local tax deduction in its entirety — under the House plan, the deduction would merely be capped. This would go a ways toward solving the plan’s deficit problem, but it would make the tax package an even worse deal for much of the upper-middle class.
Thus, other Senate Republicans are lambasting the House for going so far as to cap that deduction. “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,” Ted Cruz told reporters Tuesday. “I think that is a mistake. I think tax reform needs to cut taxes for everybody.” Senators Rand Paul and Mike Lee have voiced similar sentiments.
Meanwhile, the Senate leadership plans to scrap the House bill’s temporary $300 “family flexibility credit” (making the plan worse for the middle class, but better for the deficit), while other Republican senators are demanding a “larger and pricier” expansion of the child tax credit (good for middle class, bad for the deficit).
There is one way around this impasse. Republicans could make the House plan better for the middle class, and easier on the deficit, at the same time — if they’d only scale back their $2 trillion giveaway to corporate America.
Alas, for some insane reason, the GOP is more comfortable throwing its most vulnerable House members under the bus, eliminating tax deductions that benefit some of the most sympathetic constituencies in American politics (veterans, orphans), and raising taxes on the upper-middle class, than they are with reducing their gift to big business by a single penny.
It’s tempting to explain this behavior in vulgar Marxist terms. After all, this week, New York congressman Chris Collins explained his support for the bill by saying, “My donors are basically saying ‘get it done or don’t ever call me again.”’
But then, would those donors really give up on the Republican Party if it cut their tax rate by 10 points (as Mitt Romney had proposed) instead of 15? Or heck, if the GOP didn’t deliver any corporate tax break, at all? What, is big business really going to start donating exclusively to the party of Elizabeth Warren?
What’s more, it’s difficult to see why alienating corporate America is riskier for Republicans than giving such outsize deference to its deeply unpopular desires. Currently, the GOP has built its entire tax plan around its least popular idea. Recent polls from Morning Consult and Reuters/Ipsos find at least plurality opposition to corporate tax cuts, while CBS News poll shows a firm majority backing a tax increase on “large corporations.” In Reuters’ poll, 63 percent of Republican voters said their party should prioritize deficit reduction over corporate cuts. In that same survey, 75 percent of GOP voters said the deficit should take precedence over tax cuts for the wealthy — the Trump’s plan’s No.2 priority.
The risk of prioritizing these aims, in defiance of public opinion, isn’t just that doing so will inspire a backlash upon passage; it also might doom this Congress to total legislative failure. The utter absence of a popular mandate for the Republican plan makes it child’s play for the bill’s critics to demagogue against it, whether those critics be conservatives who find its tax cuts inadequate, Democrats who abhor its regressiveness, or special-interest lobbies, such as the real-industry, that believe they’ll lose out from the plan’s deduction eliminations. Given these realities, the GOP’s commitment to a 15-point cut to corporate taxes looks less like the product of electoral necessity than an obsessive compulsion.
Congressional Republicans are convinced that they need to score a legislative win by the end of this year, or they’ll be wiped out in 2018. They reiterate this belief in virtually every interview they’ve given over the past three months. And yet, their struggle to put points on the board is entirely self-created.
The GOP almost certainly has the votes to pass a temporary, $1.5 trillion, across-the-board individual tax cut tomorrow. They could finance such a tax break exclusively with deficit spending, thereby ensuring that no one loses out (in the immediate term). This sort of plan would provide the Republican donor class a down payment on its investment, give Trump something to tweet about besides jailing his political opponents, and allow GOP incumbents to campaign on something besides their opposition to Democratic obstruction and/or Colin Kaepernick. Most critically, unlike their current plan, a second round of the Bush tax cuts would actually be (mildly) popular.
To be sure, at a time of runaway inequality — and steady growth in the cost of entitlement programs that Republicans are demonstrably incapable of cutting — slashing individual tax rates on everyone is a bad policy. But trying to stimulate the economy through a $2 trillion corporate tax break — at a time when American corporations are enjoying record profits, and stashing unprecedented amounts of cash in offshore tax shelters — is an even worse one.
The Republican tax plan has a lot of problems. But pretty much all of them trace back to their bizarre obsession with a 20 percent corporate tax rate. If congressional Republicans fail to recognize this reality — and, thus, come away from the tax fight empty-handed — then they’re about as competent as the man in the “adult day-care center” at 1600 Pennsylvania Avenue.