When Republicans’ effort to repeal the Affordable Care Act turned into one of the great legislative failures of modern times, it was hard to be completely surprised. They never really cared about the substance of health care and had done no serious preparation for the moment when they’d finally have a chance to repeal the law, so their bumbling and internal chaos could have been foreseen.
What’s far more shocking, however, is that they could be heading for a similar screw-up on the issue that is nearest and dearest to their hearts: tax cuts.
It’s truly remarkable to see. This is the issue they’re supposed to know backwards and forwards, the one policy area they all grasp, the thing that motivates and drives them. They had to be forced against their will to learn about health care (and most of them couldn’t be bothered), but they should be able to put together a terrific tax cut smoothly and quickly, right?
Well, no. In fact, the problems are already starting. After the White House released a preliminary outline of their plan, the nonpartisan Tax Policy Center analyzed the proposal and found not only that 80 percent of the benefits would go to the richest 1 percent of taxpayers (no surprise there) but also that 25 percent of taxpayers would actually see their taxes go up. That led Sen. Rand Paul (R-Ky.) to tweet:
He’s surely not the only one feeling those doubts. Sen. Bob Corker (R-Tenn.), who recently announced that he won’t be running for reelection, says he’ll vote against any tax cut that “adds a penny to the deficit.” Don’t forget that they can only afford to lose two votes in the Senate.
The deficit is raising its own problems. Most Republicans still publicly hold to the ludicrous fantasy that cutting taxes will create such a supernova of economic growth that it will pay for itself, not only not increasing but actually cutting the deficit. This isn’t true, has never been true and never will be true — as I’ve said before, it’s like arguing that eating more ice cream will help you lose weight. Harvard University economist Greg Mankiw, who was chairman of the Council of Economic Advisers for President George W. Bush, famously called the belief that cutting taxes raises revenue the hallmark of “charlatans and cranks.”
And yet, that’s what Republicans are still supposed to claim. So it was shocking when White House budget director Mick Mulvaney slipped up and told CNN that the administration anticipates large increases in the deficit from its tax cut proposal. “We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3 percent economic growth.”
Now in one sense, Mulvaney is right. There are times when the government should borrow lots of money, particularly when it needs to spend heavily to counter the effects of a recession. That’s what the Obama administration did with the stimulus it passed in 2009. But running up huge deficits just to give tax cuts to the wealthy and corporations doesn’t help anybody except the wealthy and corporations. And if the administration’s own budget director is admitting that this tax cut will be a deficit-buster, it makes it harder for other Republicans to say with a straight face that they’re not increasing the deficit they used to pretend to care so much about.
That brings us to the loophole question. All along, Republicans have said they’d pair reductions in tax rates — for both individuals and corporations — with the elimination of loopholes and deductions, so the whole thing would balance out. But they never specified which loopholes and deductions, because once you do that, trouble starts. When you start specifying whose favored loophole is going to be eliminated, you create powerful opponents to your bill.
But you have to do it eventually, and Republicans have begun easing their way into that chilly water with a proposal to eliminate the tax deduction for state and local taxes. While that deduction affects wealthier people more, it also may be worth more if you live in a blue state, since those tend to have higher taxes. Texas, for instance, has no state income tax at all, while California has a graduated tax that tops out at 13.3 percent for those with incomes over $1 million. So eliminating this deduction would hit snooty coastal elites harder, which the administration no doubt thought would mitigate opposition within their party. The trouble is that there are also millions of people in red states who pay state income taxes and use the deduction. This is going to be a hard one to finesse.
On corporate taxes, it’s likely to be even harder, because corporations are the ones with all those high-priced lobbyists now descending on Capitol Hill like locusts to protect their tax breaks. The idea that Republicans will ax all those precious loopholes their corporate friends rely on is hard to imagine, to say the least.
So where does this all end up? My contention all along has been that anything resembling meaningful “tax reform” will prove too difficult, and Republicans will retreat to the thing most all of them can agree on: a big tax cut for the wealthy and corporations, without bothering to eliminate loopholes and without worrying about how much they’ll increase the deficit. And while it’s tempting to predict that their evident lack of preparation and the inevitable infighting that’s on its way will destroy the whole project, they do have some time. Unlike in some previous efforts at reform, they’ll be passing this through reconciliation, which requires only 50 votes in the Senate to succeed. They claim they want to do it this year, but the real deadline is January 2019, when the next Congress — perhaps with a Democratic House and maybe even a Democratic Senate — takes office.
So if they want, Republicans can vote on it a hundred times until they succeed. And that may be what it takes.