How Republicans Got To Yes On Tax Reform

Late last week, Republicans announced they had a deal on tax reform.  On Friday, the specific details of the legislation were released including doubling the standard deduction (repealing the personal), repealing the Individual Mandate, capping health care costs at 7.5 percent of AGI, capping the state/local/property tax at $10,000 and the mortgage interest deduction at $750K.  Additionally the legislation lowered all seven rates (to varying degrees), lowered the number of households impacted by the Inheritance Tax and Alternative Minimum Tax and doubled the child tax credit.  To make the bill work budget-wise these changes phase out in 2025 but which future Congress is going to levy a five hundred billion to one trillion dollar tax cut on the American people?

Corporations win out as well.  The corporate tax is lowered from 35 percent to 21 percent and unlike the individual changes the corporate changes are permanent.  Small businesses also have their rates lowered beyond the individual level by 20 percent.

After Republicans failed to repeal the ACA and reform healthcare the party has been in a downward spiral.  But, unlike healthcare, the key ideal about taxes that unites Republicans is almost every lawmaker in the party supports “tax cuts” more than they do about preserving social welfare programs or lowering the deficit.

On healthcare, Republicans spent years railing against the ACA but relatively little time deciding what they would replace it with.  Few talks occurred about what to do over Medicaid Expansion, block grants nor were a majority of members brought in on the process.  By contrast, Democrats spent more than a decade deciding what form/ideas health care reform should take/include, bringing in a majority of member interests and then be willing to suffer the political consequences of their actions.

On taxes, we saw the GOP love of cuts at every step of the process. First there was the Freedom Caucus in the House that adamantly opposed Obama’s deficit busting budgets but was fine with a plan that added up to $1.5 trillion in red ink over ten years.  Then, there were the many blue-state Republicans that swallowed a House tax bill that took away many of their constituents biggest tax deduction (state and local).

In the Senate, despite some hemming and hawing from moderates like John McCain, Lisa Murkowski and Susan Collins who sunk repealing Obamacare, all ended up voting for the Senate version.  The lone Republican Senator who voted no on the original Senate tax bill was Bob Corker, who was too worried about the debt to support the package.  Corker has since changed his mind based on rosy economic assumptions.

Despite the gaping differences between the Senate and House version the Conference Committee coming to an agreement never seemed to be in doubt.  House GOP leadership and the Freedom Caucus quickly admitted the Senate was in the driver’s seat.  The House version did help set the terms of the debate on property taxes (preserving some for blue-state members compared to few blue state GOP Senators existing).   But the Senate version kept the seven rates and kept the medical and graduate tuition assistance deduction, unlike the House version’s.

Despite the idea of tax cuts unifying the GOP underlying issues did surface throughout the debate.  Unlike the healthcare debate though, they did not kill the legislation.  Support for tax cuts seemed to trump (no pun intended) all.

For example, in the Senate, all Mitch McConnell had to do to get Susan Collins on board was promise they would address fixing the exchanges “later” with a pair of bills likely dead on arrival in the House.  John McCain, notorious not just for healthcare reform this year but also opposing the Bush tax cuts was a supporter from the start.

Even GOP support for the nuclear family bowed to the pressure of supporting “tax cuts.”  Last Tuesday, Senators Marco Rubio and Mike Lee announced they would oppose the legislation over the child tax credit.  Corporations get a tax cut so why not hard working families?

To be fair, the legislation doubled the child tax credit but the debate played out over a technicality.  Families that had no tax liability could only be refunded $1,100 (55%) of the $2,000 deduction.  Rubio and Lee agreed to support the legislation when it was expanded to $1,400 (70%).  In the face of stopping the first major piece of GOP legislation this year, Rubio took what he could get and acceded to the party’s desires for reform.

Ultimately, this debate has completely side-stepped several divides in the party between establishment vs. anti-establishment, suburban vs. rural, populist vs. pro-corporate.  Ironically, it is Democrats, who are in bed with affluent suburbanites and corporations that say the bill is too heavily weighted towards corporations.  Interesting how the tables turn.

Republicans can take some lessons from tax reform.  First, the terms of any debate should be framed in a way to unite the party.  Secondly, even marginal reform is better than nothing.  Full-scale repeal of the ACA should not have been what Republicans aimed to do but to chip away and replace as the GOP is doing with the mandate in tax reform.  Third, electoral success can push even recalcitrant members to get back on board with the party train if they feel threatened (just ask Texas Republicans).

The thinking among the party faithful is even if they get little done next year they will at least have reformed taxes.  In reality, it’s a marginal reform but does fulfill a long-time goal of the party.  Whether that does anything for the party’s chances next year is debatable but for once, probably for the first time under Trump, the party found unity on an issue.  And the result is passage of historic (if limited impact) legislation.

 

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