Earlier this week, House Republicans released their long awaited tax reform bill. Largely crafted in secret but with House, Senate and the White House in close communication the bill largely stays true to the GOP budget outline and party pledges to lower corporate taxes and give the middle class a break.
So what’s in the bill? The package condenses the seven tax brackets into 4 brackets starting at 12 percent, 25 percent, 35 percent, and keeps the highest income bracket at 39.6 percent. The Estate Tax is doubled but eventually eliminated in five years and the hated Alternative Minimum Tax is repealed. The corporate tax rate is lowered to 20 percent. The personal deduction is eliminated but the standard deduction is doubled. To pay for the bill the GOP is eliminating almost all deductions except for the charitable deduction. The Mortgage Interest Deduction and State and Local Deductions are kept but capped (at $500K and $10K respectively).
As expected, the howls from the other said could be heard far and wide. “Republicans have raided the very deductions and credits that help millions of families afford everything from groceries to medical expenses to a college education, just to give more [to] those who don’t need it and haven’t asked for it,” Ways and Means ranking member Richard E. Neal of Massachusetts said in a statement.
Nancy Pelosi got in on the action, stating “While Republicans ambush the American people with this half-baked tax bill, written in the dark to be raced through Congress before it is understood, we already know some of what to be the truth,” House Minority Leader Nancy Pelosi, D-Calif., said.
The problem for Democrats is their accusations are not true and they know it. In fact, these accusations have rang so hollow even the Washington Post called out some members of the party.
Senators Kamala Harris of California, Robert Casey of Pennsylvania and Jeff Merkeley of Oregon all put out tweets saying a family earning $86,100 would face a tax increase of $794. The information, fed by Democrats on the Joint Economic Taxation Committee was rated as flat out wrong by WashPo.
It gets worse. It is mostly Democrats from wealthy, coastal states arguing how the SALT and Mortgage Interest Deduction would hurt their wealthy constituents. It is true a number of these blue state Republicans are also crying “wolf” but Democrats are now the ones actively defending millionaires and their deductions. Bernites must be gouging their eyes out.
Democratic obstruction and opposition to the bill was not unexpected. It’s why the GOP chose to pass a budget with reconciliation instructions for tax reform included. But what is surprising is how politically tone-deaf Democrats seem to be on the issue.
In the span of two days party leaders and rank and file members have thrown everything against the bill. It’s a tax cut for the wealthy, middle and lower income families suffer, etc. Except, the middle class gets a cut and the wealthy actually do not see their individual brackets drop one iota while their cherished deductions go away.
The argument the wealthiest benefit, by lowering the corporate tax rate to 20 percent, because they own stocks and bonds may have some truth. But it also drops the rate for many small businesses and incentivizes businesses to hire and invest in individuals, perhaps helping them become the next middle class household.
Distinctions like this are lost in the debate. While knee-jerk opposition to Trump and Republicans is now common it is also true Democrats are going to have to find a way to reconcile their opposition to the rich getting cuts but the rich also keeping the deductions helping them be rich. Am I the only one noting the contradiction here?
In fact, the GOP tax bill apparently does not benefit the rich enough for some. The Wal-Street Journal Editorial Board thinks it benefits the poor and middle class too much. Speaking on the bill’s specifics, the Board said “This top rate (39.6 percent) is a surrender to Democratic class warriors, though Republicans also fear that President Trump would sandbag them. No Members want to vote for a lower top rate and then have Mr. Trump tweet that they’re ‘mean,’ as he did on health care.” Additionally, they added “Kevin Brady and Paul Ryan, the chief House tax writers, understand the weaknesses in their plan,” the editorial board said. “But the GOP is trapped in an iron cage of Beltway process. The party has bowed to the class-warfare crowd that says the bill cannot change the distribution of who pays taxes.” Interesting. If the bill was a giveaway to the rich wouldn’t the WSJ be all on board for it.
Now, there is no guarantee the GOP House bill will pass. For starters, while the GOP has compromised on the SALT (state and local income tax deduction) and mortage interest deduction some high tax state Republicans in CA, NY and NJ have announced opposition to the bill. Additionally, the Freedom Caucus has been unusually mum about the bill though they did signal prior they would accept not changing the highest income tax bracket.
Then there is the Senate where Republicans are crafting their own version separate from the House’s. The two would have to go to conference if both pass but are not married beforehand. Then they would need to pass again before Trump can sign the bill.
Of course, who can also discount the impact Trump can have on the bill. Trump reportedly wants a repeal of the Individual Mandate in the bill. This would virtually ensure every Democrat in both chambers opposes the bill but if Trump wants it Republicans might cave and hope their majorities can carry it through.
The bill in the House is sure to change between now and when a vote is called. On Monday, the Ways and Means Committee will mark up the bill and provide changes. Then additional amendments may be added by leadership. The Senate will also likely propose its own version before the House votes on its final package.
Democrats will probably move heaven and earth to muck up the process in the hopes another GOP failure leads to an electoral bloodbath next year. But, the problem is Democrats have a messaging problem on the issue. We don’t like the rich but like their deductions. “We don’t like GOP tax cuts but like tax cuts. We are pro-economic growth but don’t want corporations to actually be able to grow.”
Until Democrats find a way out of their messaging morass the GOP has a winning issue. And, for once, the GOP actually has a bill before it delivering on its message of supporting the middle class.