The Trump tax cuts are, once again, imperiled by a math problem. As of this writing, Senate Republicans are trying to find a way of making their bill a bit more expensive — and a lot less expensive — at the same time.
How they got here.
Late Thursday afternoon, the GOP was on the cusp of (finally) giving their corporate investors the dividends they were promised. John McCain had announced that he would support the tax legislation (even though the content of the bill, and process by which it was written, violate most of the Maverick’s supposed principles). Susan Collins was dismissing official deficit scores like a true supply-side crank. Lisa Murkowski was eager to vote for anything that would allow her state to accelerate the onset of catastrophic climate change. Which is to say: The Trumpcare killers were defanged.
And then, during a routine motion, Mitch McConnell’s deficit hawks showed their teeth.
Shortly before a vote on a Democratic proposal that would have sent the bill back to committee, Congress’s Joint Committee on Taxation (JCT) released its “dynamic” score of the Senate tax bill. This analysis of the legislation’s fiscal effects was modeled on conservative premises — for the purposes of the score, the JCT assumed that the GOP’s tax cuts would generate higher growth and, thus, partially pay for themselves. But the key word there is partially: In the JCT’s estimate — which assumes there will not be another recession any time in the next decade — the Republican plan would add $1 trillion to the deficit over the next ten years (under a “static” model, the bill’s price tag is $1.5 trillion).
That finding confirmed the fears of Bob Corker and Jeff Flake. The two anti-Trump GOP senators had been sounding alarms about the tax bill’s price tag for weeks. Now, they were all the more adamant that the legislation would need to include a “trigger” — a provision that would automatically repeal certain tax cuts, if the JCT’s deficit predictions proved true.
By itself, this would have been fine. McConnell was prepared to accept such a trigger. But then, the parliamentarian ruled that the measure ran afoul of the Senate’s budget rules. The provision was scrapped. Flake and Corker revolted — and Wisconsin senator Ron Johnson seized his chance to get his family an even bigger tax cut.
McConnell can afford to lose two votes, but not three. Flake and Corker threatened to vote for the Democratic motion, unless the Senate Majority Leader promised to cut the bill’s price tag by between $350 and $500 billion. Johnson, meanwhile, demanded McConnell make the bill even more expensive, by making its tax break for “pass-through” businesses — like the one the Johnson family owns — even bigger.
Further complicating matters, McConnell had already promised Susan Collins that he would add a $10,000 property deduction to the bill. Meanwhile, Mike Lee and Marco Rubio had been pushing for an even larger child tax credit. Now, they had the power to pull a Ron Johnson — team up with the deficit hawks, and hold the bill hostage to their demands.
McConnell’s got 99 problems — and the deficit hawks are just one.
On Friday morning, McConnell appeased Johnson. If he can keep everyone else in line, the Majority Leader could write off Corker and Flake, and their deficit concerns. But this, alone, won’t solve his math problem.
Even before the deficit hawks raised a fuss, the GOP bill needed more revenue. Due to the terms of the Republicans’ budget resolution, the tax bill cannot add more than $1.5 trillion to the debt over the next ten years, on a static basis. The legislation already cost about that much, before McConnell promised to give Collins and Johnson what they asked for — provisions that will cost hundreds of billions of dollars.
So, McConnell already needed to find a way to scale back some of his bill’s (other) tax breaks — without losing anyone’s vote — before Corker came uncorked.
It didn’t have to be this hard.
In 2012, the Republican Party wanted to slash the corporate tax rate by 10 points, to 25 percent. If Senate Republicans could content themselves with making Mitt Romney’s dream come true, all their problems would be solved. Instead, the party is holding tight to a 20 percent corporate rate.
If the party were willing to move up from that figure, they could satisfy each of their holdouts’ pet concerns, while still cutting the overall cost of the bill. This would also allow the GOP to make the legislation less politically toxic. Corporate tax cuts are deeply unpopular. And yet, in order to finance a 15-point cut in the corporate rate, Republicans have been forced to raise taxes on many of their own middle-class voters, and phase out the bill’s tax breaks for other middle-class voters.
Nevertheless, Republicans have held the line on 20 percent — ostensibly, because Donald Trump became fixated on that number. According to the New York Times, the White House has declared a 20 percent corporate rate to be one of its “red lines.” And Trump’s insistence on that figure has emboldened the party’s corporate donors — and thus, many GOP lawmakers — to argue that a 21 percent corporate rate is basically communism.
The president’s recalcitrance has also led Republicans to consider revising their bill in ways that are both economically and politically insane. Specifically, over the past 12 hours, McConnell’s caucus has reportedly entertained the idea of lowering the corporate rate to 20 percent next year — and then setting the rate to gradually rise from there. Combined with the bill’s other provisions, this would actually discourage investment in the short term, as Business Insider’s Josh Barro explains.
Such a measure would also, potentially, empower Democrats in future fights over spending: Republicans will want to prevent their scheduled corporate tax hikes from taking effect, and they could need Democratic cooperation to do that. By contrast, setting the corporate rate to gradually decline over time would save money in a way that encourages investment, and poses no risk of providing Democrats with leverage.
Alas, that approach would require Donald Trump to accept that the corporate rate will be higher than 20 percent throughout his first term in the White House. More critically, it would require all the actors who’ve been emboldened by Trump’s red line — namely, the Koch Brothers and House Freedom Caucus — to accept the same.
Odds are that Mitch McConnell will find a way to square this circle, yet. But his job would be much easier — and the GOP bill, less heinously unpopular — if only Trump were more attracted to the number 25.