The White House is coming down with a bad case of déjà vu: Senate Republicans are squabbling over ostensibly intractable visions for the party’s top legislative priority; illness is threatening to narrow Mitch McConnell’s already rail-thin margin for error; Paul Ryan’s far-right flank is poised to reject any compromise with a chance of surviving the upper chamber; polls are exposing the profound unpopularity of the GOP agenda; and renegade senators are hawking their own alternatives to the leadership’s blueprint.
To President Trump and his administration, the quest for tax reform looks like repeal and replace (i.e. flail and disgrace) all over again.
The good news for the White House is that the Senate passed a motion Tuesday to open debate on a 2018 budget resolution — a prerequisite for getting tax cuts out of the upper chamber with only 51 votes — with no Republican defections. And, 24 hours after postponing his return to the Senate indefinitely due to health problems, Mississippi senator Thad Cochran now intends to be in D.C. in time to vote for that resolution.
The bad news is everything else. It’s true that senators don’t normally vote to advance legislation to debate if they aren’t willing to ultimately support it. But John McCain provided a memorable counterexample during the health-care fight — and now Rand Paul is signaling that he intends to perform the same anomaly, unless billions in military spending are stripped from the resolution. The Senate’s defense hawks will never swallow that bitter pill. If the Kentucky libertarian sticks to his guns, McConnell can only afford to lose two other votes or the budget resolution will fail.
Now, odds are McConnell will clear that hurdle. Approving a budget resolution doesn’t commit anyone to a particular tax “reform” bill, but merely establishes the broad requirements for future legislation (which senators will have the opportunity to vote down, should they choose). In other words, the stakes of being a team player here are much lower than they were when McCain killed “skinny repeal.”
But for that same reason, the fact that the resolution’s success isn’t a certainty is deeply inauspicious for the tax package itself.
After all, this is supposed to be the easy part of the easy part: Once McConnell’s caucus reaches agreement on a resolution, it will need to find consensus with the House, which has already passed a very different resolution. And while the Trump administration is pushing for the House to accept the Senate’s terms, it’s far from clear that the lower chamber is prepared to do so.
Paul Ryan’s caucus barely inched its resolution across the finish line, amid conservatives’ harrumphing about the inadequacy of its cuts to spending on anti-poverty programs. The House budget mandates $203 billion in cuts to domestic spending. The Freedom Caucus wanted more than double that; the Senate resolution mandates approximately $0.00 (the resolution does ask the Natural Resources Committee to find $1 billion in savings, but that’s largely a pretext to open up the Arctic National Wildlife Refuge to oil drilling).
These are not minor differences. Rather, they reflect the defining divide – both between Senate and House Republicans and within each of their caucuses. While everyone wants giant tax cuts, the party’s right-wing wants to partially offset them with reductions to social spending; the mainstream Republicans wants to do so by ending various tax deductions; and a small, but potentially decisive faction, wants to fully offset them with some combination of the two.
The deep unpopularity of the Republicans’ unifying goal — large tax cuts for the rich and corporations — gives each faction a potent talking point to use against the others. Opponents of closing loopholes, like Rand Paul, can point to the Trump plan’s enormous giveaways to the one percent, and argue that it’d be obscene to give relief to those fat cats while simultaneously raising taxes on upper-middle-class families by eliminating the state and local tax deduction (SALT). Republican moderates can strike similarly populist notes when resisting the right’s demands for cuts to Medicaid and food stamps; and the party’s few sincere deficit hawks can do the same when asking, “Won’t someone please think of the grandchildren?”
But okay: Let’s say the House holds its nose and agrees to add $1.5 trillion to the deficit while resisting the urge to take food away from impoverished children. Even in this rosy scenario, Republican tax writers would still find themselves back in the vicinity of square one. According to the Committee for a Responsible Federal Budget, the GOP’s initial framework for its tax cuts would add $2.2 trillion to the deficit over the next decade — $700 billion more than the Senate resolution allows. And that score assumed that the final plan would generate $1.3 trillion in revenue by ending the SALT deduction. But the White House is already backing off that proposal, in the face of opposition from Republicans who represent high-tax states. Right now, the ostensible plan is to limit the deduction to individuals with incomes lower than $400,000 — a measure that would only produce $481 billion in revenue over a decade. Meanwhile, the plan’s other major pay-for — good for $1.6 trillion worth of revenue — is the repeal of the personal and dependent tax exemptions, another “loophole closure” that hurts the upper middle class.
Assuming that they can find agreement on capping SALT and repealing those exemptions, Republicans will still need another $1.1 trillion in revenue raisers or spending cuts, just to meet the formal requirements imposed by the Senate budget resolution. If tea party hardliners and GOP moderates band together in opposition to “middle-class tax hikes” of any kind, then the party will find itself more than $2 trillion over the Senate’s deficit cap.
At that point, the GOP could try to scale back the size of its rate cuts for corporations and small businesses. But members of the Freedom Caucus have said that they won’t tolerate cuts any smaller than those already on the table. “If the corporate rate is above 20 percent and if the small business rate is above 24 percent I would vote against it,” Mark Meadows, the caucus’s chairman, recently said.
So: If everything goes according to plan, House and Senate Republicans will soon agree on a budget resolution — and find themselves with a trillion-dollar math problem.
Mitch McConnell would then need to devise a means of making the president’s tax plan more than $1 trillion less generous, while losing a maximum of two Republican votes (assuming Democrats don’t break ranks) — or one, should Cochran’s health sideline him again.
Tennessee’s Bob Corker has already vowed to oppose any tax reform bill that adds a penny to the deficit. Rand Paul is (ostensibly) opposed to any package that eliminates deductions used by the middle class, or that lifts statutory caps on military spending, and John McCain won’t vote for any legislation that displeases the Pentagon. And then there’s Susan Collins, who is leaning toward voting for the resolution, but has expressed skepticism about the tax plan, itself. Shovel more than a $1 trillion worth of vegetables onto a tax plan that’s already unpopular in its present “almost-all-candy” form and it isn’t hard to see the Maine senator going maverick.
So, from one angle, this thing looks near-dead already: Corker’s a hard no; Paul and McCain have irreconcilable demands; and Collins is the unsafest of bets.
Things can change in a hurry on Capitol Hill. Congressional Republicans have an enormous incentive to just pass something on taxes, so as to remain in their donors’ good graces. And the Obamacare repeal push amply demonstrated how little most Republican lawmakers’ “red lines” actually mean.
Still, the math here, in both the Senate and the budget, looks impossible. If the White House wants to get anything passed by early next year — let alone by the end of this one — it’s going to need to trim its sails soon, and encourage conservative stalwarts to lower their expectations.
Wisconsin senator Ron Johnson (of all people) appears to see the writing on the wall. He’s pushing a “plan B” that would end all taxes on corporate profits and raise them dramatically on dividends and capital gains. While in its present form, Johnson’s proposal is prohibitively expensive and radical, a more modest version of the same scheme (one that lowers the corporate rate instead of abolishing it) has won the support of both left- and right-leaning think tanks in the past. This is probably because the plan offers a coherent answer to a genuine policy challenge — namely, how policymakers can encourage companies to operate within the United States without exacerbating income inequality, as business tax cuts generally do. Johnson’s plan could ostensibly solve this puzzle by ensuring that shareholders receive no significant benefit from a large cut in the corporate rate.
Alas, the White House, and GOP leadership, see Johnson’s efforts as the opposite of constructive. They’re keeping their eyes on the (impossibly ambitious) prize. All signs point to “so much losing” ahead.
