Senate Republicans have taken huge political risks — and violated many of their putative principles — in order to maximize the amount of money that their tax cut bill would deliver to corporate America. Mitch McConnell’s caucus voted to raise taxes on a broad swath of the middle class; increase the number of uninsured Americans by several million; and swell the deficit (which they had spent a decade decrying as an existential threat to their grandchildren) by $1.5 trillion — all for the sake of slashing the corporate tax rate by 15 percent (or 5 percent more than Mitt Romney had ever dared to dream).
To prevent the intense unpopularity of their priorities from derailing the effort, McConnell forced his members to punch the bill through in a single week. The Senate leadership wrote the final version of the legislation over lunch Friday, and passed it at 2 a.m. the following morning.
And then, Senate Republicans woke up Saturday to find that they had accidentally nullified (virtually) all corporate tax deductions.
Currently, most corporations face a 35 percent (statutory) rate on their income. But by availing themselves of various tax credits and deductions, most companies can get their actual rates down far below that figure. To put a limit on just how far, the alternative minimum tax (AMT) prevents companies from paying any less than 20 percent on their profits (or, more precisely, on the profits that they fail to hide overseas). The GOP had originally intended to abolish the corporate AMT. But last Friday, McConnell made a series of expensive, last-minute changes to the bill and found himself in desperate need of offsetting revenue. So, Senate Republicans decided to put the AMT back into the legislation — but forgot to lower the AMT after doing so.
This was a big problem. The Senate bill brings the normal corporate rate down to 20 percent — while leaving the alternative minimum rate at … 20 percent. The legislation would still allow corporations to claim a wide variety of tax credits and deductions — it just renders them completely worthless.
We’ve known about this error for days. But the magnitude of McConnell’s mistake is just now coming into view. Initially, Congress’s Joint Committee on Taxation estimated that adding the AMT back into the bill reduced the size of corporate America’s tax cut by $40 billion. It now appears that this estimate was off by a couple hundred billion. As Lily Batchelder, a former Obama administration economist and current New York University professor, explains:
If Republicans had been willing to cut the size of their gift to corporate shareholders by $300 billion, they could have made some of their bill’s middle-class tax cuts permanent — instead of phasing all of them out in 2026, and handing Democrats a potent talking point. Alternatively, they could have added Marco Rubio and Mike Lee’s (popular) proposal to increase the child tax credit. But they didn’t. Budget rules required the party to keep the total price of its tax package under $1.5 trillion, and so hard choices had to be made.
Now, it looks like McConnell accidentally left roughly $300 billion worth of tax cuts on the table.
The upshot of all this: Republicans will almost certainly need to put a tax bill before the Senate again. Previously, the party assumed that the House would happily pass the Senate bill, if the upcoming conference committee (the House and Senate leaders tasked with reconciling each chamber’s bills) failed to reach agreement. The scale of McConnell’s mistake suggests that might not be an option.
Last week, the Trump tax cuts cleared the upper chamber by a mere two-vote margin. One of those votes was supplied by Susan Collins. The Maine senator famously voted against her party’s Obamacare-repeal bill, and had said that it was a “mistake” for the GOP to include a repeal of that law’s individual mandate in its tax-cut legislation. According to the Congressional Budget Office, repealing that mandate will increase the number of Americans without health insurance by 13 million over the next decade, while raising premiums on the individual market by 10 percent. But Maine’s favorite “moderate” was willing to bite that bullet — because Mitch McConnell promised that Republicans would appropriate new subsidies and reinsurance funds to stabilize the individual insurance market, so long as she voted to destabilize it first.
Whether Collins actually believed McConnell is unclear. Even if the Senate Majority Leader were sincere in his commitment to her legislative requests, he doesn’t actually have the power to compel House conservatives to vote for new Obamacare spending. Regardless, Collins clearly wanted her constituents to believe that McConnell could be believed. The senator advertised the promises she’d secured when justifying her vote for the tax bill.
But Paul Ryan and House conservatives have ripped away Collins’s fig leaf. The House Speaker’s office indicated Monday that Ryan had no intention of adhering to McConnell’s promise. House Freedom Caucus chair Mark Meadows, meanwhile, told Talking Points Memo that conservatives would be unlikely to support Obamacare fixes unless they were paired with a rollback of some of the law’s regulations. The bipartisan Murray-Alexander bill that Collins supports does include modest deregulatory measures. But Meadows suggested that he finds these inadequate. Should House Republicans insist on more radical changes, Democratic support for the law in the Senate will likely dissipate.
For the moment, none of this appears to have shaken Collins’s support for the bill. But it has ensured that her second vote for the Trump tax cuts will be more politically painful than her first one. Beyond the collapse of her health-care “deal,” the Republican bill isn’t getting any less (historically) unpopular. And progressive activists in Maine are mobilizing in opposition.
If Collins were to lose her nerve — and Tennessee senator Bob Corker were to retain his opposition to the bill on deficit grounds — then McConnell would only have one vote to spare. Should one of the multiple elderly, Republican senators with ongoing medical problems fall ill — or, should Doug Jones win Alabama’s special Senate election next week — the Trump tax cuts could conceivably fall into jeopardy.
Granted, that’s a lot of “ifs.” And it’s also far from clear that House Republicans would refuse to pass the Senate’s sloppy first draft, if that did become the only option.
Nevertheless, McConnell’s haste-induced mistake has put his party’s tax bill at unnecessary risk. And if he is able to steer some amended version of that legislation to Trump’s desk, his party’s other careless errors will put our tax system in needless peril for some time to come.