Tuesday, March 28, 2017

Will Republicans Burn Down the Senate to Cut Rich People's Taxes?

by Neil H. Buchanan

Even in a world where Republicans have shamelessly abandoned their supposed principles in order to embrace Donald Trump, the one thing about which they all still agree is that they must cut taxes on the rich.  On this point, Trump happily concurs.  Indeed, Trump's regressive economic views easily put him into what now counts as the Republican mainstream.

Now that they are looking for a place to start all the winning that Trump promised his non-majority of voters, the latest rumors are that congressional Republicans will take a run at the tax code.  Other commentators have noted that this is hardly an easy lift, especially because the details of a tax overhaul will quickly destroy whatever unity remains on the right.

That is surely correct, but my question here is a different one.  Suppose that the Republicans in Congress -- both their leaders and their most extreme members -- actually manage to get their collective act together and agree on the details of a huge gift to their wealthy patrons in the form of a tax "reform" bill.  Suppose also that Democrats in the Senate refuse to go along.  Are Republicans so committed to reverse Robin Hood policies that they will finally abandon all pretense of preserving Senate rules?

In other words, will Republicans "go nuclear" on tax cuts for the rich in the same way that they might change the rules to confirm Supreme Court nominee Neil Gorsuch?

The background for this question was included in news coverage of the spectacular failure of the TrumpRyanCare bill last week.  Matt O'Brien of the Washington Post argues: "Now, the crazy thing is that this first tax cut for the rich (in the form of Obamacare 'repeal and replace') would have made a second one (this one coming in the form of 'tax reform') look more affordable."

O'Brien is referring to the fact that the regressive spending cuts in TrumpRyanCare were so harsh on poorer and older Americans that the bill overall saved money, even though there were huge tax cuts for the rich in that bill, too.  This matters because of a possible implication of the so-called Byrd Rule, which requires 60 votes in the Senate to pass a bill that will increase the deficit beyond the 10-year budget forecasting time frame.

Yes, my eyes are glazing over, too, but this actually becomes interesting rather quickly.

O'Brien's explanation at this point unfortunately becomes more than a bit opaque, but Alan Rappeport makes a similar argument with a bit more clarity in The New York Times:  "Eliminating the $1 trillion of Affordable Care Act taxes and the federal spending associated with that law would have made this easier. Because they failed, Republicans will struggle to reach their goal of cutting corporate tax rates without piling on debt."  In short, the idea is that TrumpRyanCare could have paid for at least some of the net increases in debt that the coming regressive tax cuts will create.

I should say here that I am honestly not sure that O'Brien and Rappeport have this right, as I will explain momentarily.  They are, in any event, definitely on solid ground in noting that the Byrd Rule would require 60 votes in the Senate to pass a tax bill that is a net loser beyond the 10-year budget window.

That, in fact, is exactly what happened in 2001, when the first round of Bush tax cuts was passed by the Senate even though there were not 60 votes in support of the bill.  Because of the Byrd Rule, that legislation was utterly bizarre, including a multi-year phaseout of the estate tax which eventually resulted in full repeal for exactly one year before reverting to its 2000 levels in 2011.  (Subsequent legislation prevented that full reversion.)

Readers might also remember the "fiscal cliff," which actually played out in two steps.  In late 2010, when the Bush tax cuts were about to expire (all of them, not just the estate tax repeal), President Obama and the Democrats agreed at the eleventh hour to extend the full package for two more years.  Then, when those two years were ending in late 2012, we ended up with Vice President Biden and Mitch McConnell meeting on New Year's Eve to hammer out a compromise.  This was truly a case of waiting until the last minute.

And all of this happened because Republicans could not find 60 votes in favor of permanent changes to the tax code in 2001.

My skepticism -- or perhaps it is more accurate to call it uneasy doubt -- is that the Republicans could have used a successful vote on TrumpRyanCare to reduce the need for offsets in their upcoming tax cut bills.  This would require the ability to use net deficit reduction beyond 2026 in the health bill to be "bankable" as a credit that could be used against the out-year losses caused by the regressive cuts.  But even if that is true, it is not obvious what the limits are on using one bill to offset another.

I am, however, perfectly willing to admit that I am not a parliamentarian, and I simply do not know the answer to this question.  I would not be surprised if my doubts turn out to be unfounded, but at the very least this argument is under-explained.  It is true that there is at least one good administrative reason to allow cross-bill credits, which is that it would otherwise require all relevant bills to be stapled together in one bill.  On the other hand, we would need to know how far back a Congress can reach to say that a bill has been "paid for."

Because the Republicans' shot themselves in the face on the health care bill, however, we actually do not need to know the answer to that question.  Instead, we will at best be back in the position in which Bush and the Republicans found themselves in 2001.  Again, however, we might not even get that far, because the better bet is that the Republicans will not be able to get their act together even on something as fundamental to them as tax giveaways to the rich.

If they do finally agree, however, it is nearly impossible to imagine eight Democrats in the Senate voting to allow the bill to overcome the Byrd Rule.  Republicans could easily pick up one or two Democratic votes, because Senators Heidi Heitkamp from North Dakota and Joe Manchin from West Virginia are surely in a panic to win reelection in their Trump-loving states.  But eight?  Not likely.

This means that the Republicans will be tempted to jettison the Byrd Rule, in order to guarantee that this gift to their super-rich supporters is permanent rather than merely a ten-year respite.  Interestingly, that rule is actually part of a statute, rather than being merely an internal Senate rule.  Even so, the issue will be very much like the one that Senate Republicans will soon face if the Democrats decide to filibuster Gorsuch's confirmation vote.

I should say that I very much want Democrats to filibuster Gorsuch, for reasons too numerous to go into here.  I also like the idea of Democrats not voting at all on the nomination, abstaining en masse as a symbolic way to say, "Republicans did not even give Merrick Garland a hearing, so we're not voting on Gorsuch because he does not deserve it."

But either way they do it, if Democrats do filibuster Gorsuch, the Republicans will have to decide whether to change the Senate's rules to allow a simple majority vote and thus guarantee Gorsuch's elevation to the high court.  This is not a sure thing, however, because Mitch McConnell and other senators (on both sides of the aisle) tend to be big fans of their chamber's unique procedures and traditions.

If they do decide to go nuclear, McConnell and the Republicans will surely blame Democrats for removing the filibuster rule for other presidential appointments when Barack Obama was president.  "They did it first!"  Democrats will then say that Republicans were abusing the filibuster, and the whole argument will go nowhere, as usual.

But the bottom line is that, if Republicans do want to overcome a filibuster of Gorsuch's nomination, they will have to abandon Senate traditions that they have claimed to hold dear.  They might convince themselves that they are justified in doing so, but there should be no doubt about what they would be doing.

As I noted above, the Byrd Rule is more than a mere internal rule of the Senate, but the story is still the same.  If Republicans want to deliver their regressive tax cuts on a permanent basis, they (with simple majorities in the House and Senate, along with Trump's signature) can pass a new statute amending or repealing the existing statute that embodies the Byrd Rule, to make it possible to pass their tax cut with only 51 Senate votes (possibly including VP Pence).  Will they do it?

This is another situation in which the instincts of senators, especially the longest serving among them, would counsel against making a change.  Moreover, they would have to go on record as voting to gut or repeal a law that has always been understood to be a way to prevent increases in the public debt.  The late Senator Robert Byrd was a deficit hawk, and his rule was designed to reduce deficit spending.

As a macroeconomist, I feel honor-bound to add here that politicians' obsession with public debt and deficits is actually quite misguided, because we should not be worried about increasing the debt if we do so for the right reasons.  Here, however, the Republicans are talking about permanently cutting rich people's taxes, which is the very definition of a bad reason to increase long-term government debt.  Trickle-down economics still does not work.

The bottom line is that McConnell and his right-wing colleagues (including those who masquerade as moderates) will soon have to decide how much of the Senate they are willing to burn down.  The two pending test cases, moreover, could not be more fundamental to the Republican base.

After all, many evangelical voters were convinced to hold their noses and support Trump specifically to "save" the Supreme Court.  At the same time, tax cuts for the rich are the sine qua non of being a conservative in American today.

When faced with the question, "Do we stop ourselves when we are this close to fulfilling our dreams?" my guess is that Republicans will say, "Hell no!"  Power is temporary, and they will want to abuse it while they can.

7 comments:

wolflarson71 said...

As a macro economist, can you point to a mainstream economics textbook with a chapter on "trickle down economics" as opposed to just being lazy by using some phony Leftist phrase that doesn't really mean anything substantive?

Shag from Brookline said...

This is not mainstream but is quite defining of trickle down economics at:

http://www.urbandictionary.com/define.php?term=trickle%20down

Joe said...

Comments latching on to one word in a long post (with a link to a general discussion of the economic principle referenced), talking about "just being lazy by using some phony Leftist phrase" might not be taken totally at face value either.

"Trickle down" applied to the current occupant of the White House has unfortunate connotations.

wolflarson71 said...

"Comments latching on to one word in a long post (with a link to a general discussion of the economic principle referenced), talking about "just being lazy by using some phony Leftist phrase" might not be taken totally at face value either."

Whenever I see partisan buzzwords used like "trickle down", "globalist", "elites", etc., I tend not to trust the rest of the arguments being made.

Joe said...

Yes, when I see comments talk about "Leftist phrases" (capital "L" is a special touch), I tend not to take them that seriously either.

He used the term once from what I can tell in a long post. There is a link to an essay he wrote about the general economic principles he finds unconvincing. If a use of a buzzword is going to throw you off, good luck. People sometimes use them especially on a blog, where the terminology is going to be a bit more loose.

This is especially the case of a word like "globalist" is going to be a problem. As to "elites," that is a thing. Making reference to them playing a special role being a problem will be tricky too.

wolflarson71 said...

I can’t control what buzzwords partisan use unfortunately.

“Rich” (see this post) is another red flag denoting lazy analysis. You might as well be saying “old people” since being wealthy usually represents a stage in life rather than some inheritance tycoons (exceptions of course).

Joseph said...

An economist who hasn't heard of supply-side economics? We've got ourselves a rare bird here.