Having failed at their first big legislative push to repeal the Affordable Care Act, Republicans are now turning their attention to their second priority, the one that was always first in their hearts: tax reform.
But they’re running into some problems there, too: substantive problems, procedural problems and political problems. Here’s a report on the latest from Jonathan Swan:
As full-blown tax reform looks more and more like an unreachable stretch, there’s increasing conversation on the Hill about what’s being called a “candy option” — all the goodies, with none of the pain.
That would mean lower personal and corporate rates, plus some limited repatriation, funded largely by deficit spending.
To be clear, this is a fallback, not what congressional Republicans would prefer. But it’s what I’ve been predicting. Faced with the complexity of sweeping tax reform and the difficulty of satisfying all the different interest groups and constituencies that have something to gain or lose and will thus be lobbying frenetically on the bill — there’s a reason Congress does this only once in a generation or so — they’ll throw in the towel and default to what they can agree on.
And what Republicans can agree on is cutting taxes for the wealthy and corporations. The kinds of reform that are more complex and that some Republicans but not others support, such as a border adjustment tax or the elimination of significant loopholes (each of which has its influential defenders), will just have to be put aside.
But doing that presents a couple of major political problems. The first is that Democrats will shout that Republicans are just bestowing a gift on the wealthy, which is what Democrats always say. They say this because it’s true, and because it’s extremely effective.
The second political problem the candy option presents is that it’s another broken promise likely to dispirit the Republican base. For eight years, Republicans have been saying, “Give us power, and we’ll do all kinds of terrific things.” Now they have the power, but they failed to deliver on their first promise of ACA repeal, and another high-profile failure on top of that would be devastating.
So on one hand, they have to at least try to do the kind of comprehensive reform they said they would, but on the other hand, the harder they try, the worse it will be if and when it comes crashing down. That prospect has them considering giving up before they even start, which also would make them look weak and ineffectual. It’s quite the dilemma.
Republicans also face a procedural problem. According to Senate rules, they can avoid a filibuster (and its 60-vote requirement) of their tax reform bill by passing it through the magical tool of “reconciliation,” which would require only 50 votes (they have 52 seats in the Senate). The problem is that reconciliation has its own rules, which state that it can be used only for bills that don’t increase the deficit beyond 10 years. One way to get around that is to do what Congress did when it passed the George W. Bush tax cuts in 2001 and 2003, which is to make them sunset after 10 years, in the hope that a future Congress will renew them — then you can increase the deficit as much as you like. So this is an obstacle Republicans can surmount, but it would end with them not getting their first choice; they’d rather make permanent changes.
Republicans have said that they’ll be able to write a tax reform bill that is revenue-neutral, by doing things such as lowering tax rates while simultaneously eliminating loopholes, thereby making the whole thing balance out. Is that theoretically possible? Yes. Are they likely to do that? No. It’s just not in their nature. They want to cut taxes, especially on the wealthy. If you make everything balance out, you haven’t made the kind of progress in that direction that they want to make.
There’s one other matter that has been the subject of some complicated discussion. You may have heard it said that Republicans want to repeal the ACA before doing tax reform, because that would “free up” a large chunk of money that could then be factored into tax reform, getting them closer to the revenue-neutral score they’d need to make their tax changes permanent through reconciliation.
But according to budget experts I’ve spoken to, this is wrong.
The idea is supposed to be that by repealing the ACA and the taxes included in it, Republicans would lower the overall revenue “baseline” of the entire government, thereby meaning that they’d have to bring in less overall in taxes, which would allow their tax reform to include satisfyingly deeper cuts. The problem is that when it comes to the assessment of a tax reform bill, it will be judged on its own to determine whether it meets the requirements of reconciliation. That bill will include some provisions that raise more revenue (such as eliminating loopholes) and some that cut revenue (such as cutting rates), and the question is whether they balance out. Either they will or they won’t. It’s the changes to the tax code in that reform bill that matter. If they’re going to eliminate the inheritance tax, say, that will increase the deficit, and whether they lowered the baseline in a previous bill (by, say, eliminating the medical device tax in the ACA) doesn’t factor in (you can read more on this here).
Now, once again, Republicans can pass tax reform that increases the deficit via reconciliation if they sunset it after 10 years. Which brings us back to the candy option. Their best alternative may be to just pass some simple upper-end tax cuts with a 10-year sunset and declare victory. We’ll see how that goes over.