Will GOP decimate budget to notch win on tax cuts?
Republicans in Congress really need a win, after the stunning collapse of their health care initiative. President Trump could use a boost too, with his approval numbers flagging and his deal-making reputation tarnished.
But next on their list of legislative priorities is tax reform, one of the trickiest, most elusive goals in American politics.
Not since President Reagan has there been a successful reorganization of the tax code, the kind of root-and-branch effort that involves closing loopholes, simplifying regulations, and reducing rates for individuals and corporations — all while fighting off lobbyists desperate to protect their own pet provisions.
Fortunately for Republicans, there’s a smoother path. Forget tax reform; just cut taxes. So what if the tax code stays arcane and complex. This way individuals get more pocket money, businesses keep more of their profits, lobbyists hold on to their cherished loopholes, and Trump claims his first legislative victory.
And there’s only one sacrifice Republicans would have to make, if they chose this route: They would have to let the budget deficit explode.
Ultimately, that’s the key difference between tax reform and tax cuts. True tax reform is revenue-neutral, or close to it. It rearranges the tax code in a way that doesn’t affect the amount of money being collected. Maybe my income tax rates go down, but I lose my mortgage interest deduction. Or perhaps high-income individuals end up paying less, while middle-income Americans pay more.
Tax cuts, by contrast, cost money. And big tax cuts — like the ones Trump and Paul Ryan have separately proposed — cost more than the government could reasonably hope to offset with reduced spending. That makes rising deficits all but inevitable.
Now it’s true that there’s a wrinkle in this story. Republicans have to craft a plan that’s deficit-neutral over the long term, if they hope to use the much-coveted reconciliation rules that would make their tax bill filibuster-proof (meaning they would need only a simple majority to win approval). But a simple gimmick solves this. Just make the cuts expire after a decade, as George W. Bush did with his tax cuts; that way they can’t affect the long-term fiscal picture, even if they break the budget now.
This brings us back to the basic choice facing Republicans. Are they willing to join an uncertain fight for a long-elusive, revenue-neutral, loophole-closing tax reform plan? Or will they settle for tax cuts that would excite businesses and wealthy donors, even if it means a decade of budget-busting deficits?
Maybe the answer seems obvious, given that Republicans have been railing against deficits for decades — and Trump himself has promised to eliminate the entire national debt in eight years. But what if rising deficits are the only way for Republicans to advance their legislative agenda and pass meaningful tax cuts?
Note, too, that there’s ample historical precedent for a deficit-stoking Republican bill. Somehow, it hasn’t penetrated the public consciousness, but Republicans have increasingly become the party of big deficits.
The Bush tax cuts provide the most recent example, having turned a short-lived government surplus into a deficit we’ve never eliminated. But in fact the last Republican president who shrank the deficit during his time in office was Dwight Eisenhower.
It’s possible today’s Republicans are different. Only 20 percent of current House Republicans were around for the Bush tax cuts. And many of the newcomers have ties to the Tea Party movement, with views dogged enough to have quashed the Trump-Ryan effort to replace Obamacare. That could mean more stringent views on deficits, too.
Or not. Over the weekend, the chairman of the far-right Freedom Caucus, Representative Mark Meadows of North Carolina, said publicly that he’s OK with tax cuts that increase the deficit.
If enough of his colleagues agree, Republicans should be able to find a direct route to legislative success. All they need to do is drop the push for revenue-neutral tax reform and accept a more straightforward trade. Tax cuts for many Americans, rising deficits for the foreseeable future.
Whether that counts as a victory for America at large is less clear. Among other things, big deficits make it harder to respond to a recession. But at the very least it looks as if the weeks ahead will reveal something about the real priorities of the Republican Party. Namely, which one matters more: tax cuts or balanced budgets.