Friday, March 23, 2018

Will Republicans Take the Tax Cut Merry-Go-Round For Another Spin?

by Neil H. Buchanan

My new Verdict column, published today, begins with a personal remembrance of Julie Hilden. whom professor Dorf memorialized in a post here on Monday.  I hope that reading about her might cause some of us to aspire to be even one-tenth as kind, generous, and caring as she was.

Returning to the mundane issues of the day, the remainder of my column assesses why the Republicans are having such a hard time selling their recent tax cuts to the American people.  Even though the bill was wildly unpopular while Republicans were ramming it through Congress by breaking every rule and norm in sight, they were absolutely sure that people would soon love the bill, because it was a tax cut, and everyone loves tax cuts.  Right?

Not so much.  As anyone who has paid attention knows, the new law continues to be distinctly unpopular, even though Democrats have not been particularly aggressive in reminding people of what is so wrong with the Republicans' handiwork.  Republicans themselves dropped the tax issue even as they were stumbling through a losing effort during a special congressional election in a Trump-friendly part of Pennsylvania a few weeks ago.

My column reviews the two reasons that people are not buying what the Republicans are selling: (1) Everyone knows that the tax cuts are merely part of a larger plan in which Republicans increase deficits in order to justify cutting Medicare, Medicaid, and eventually Social Security, and (2) People are hardwired to punish unfairness, so much so that they will actually refuse financial gain (such as the crumbs that Republicans included for people who are not rich or cannot turn themselves into businesses for tax purposes) in order to prevent selfish people from taking more for themselves.

I also mentioned in passing recent reports that Donald Trump and many Republicans are now talking about another round -- "phase 2" -- of tax cuts.  I noted that there simply does not seem to be enough time on the congressional calendar during this election year for Congress to do anything even mildly ambitious, an assessment that was confirmed by reports that the recent spending bill (which, as of this millisecond, Trump is threatening to veto, which would cause another government shutdown) is the last major piece of legislation that Congress will attempt to pass this year.

According to a report in The Hill, however, Republicans view this new tax cut proposal not as an immediate attempt actually to pass another tax cut.  Instead, they are apparently planning to use the familiar strategy of forcing Democrats to vote against tax cuts over and over again, thus providing a voting record that Republicans can run against.

Whatever the intent or seriousness of introducing any further tax legislation, the talking point that various Republicans interviewed by The Hill emphasized was based on the embarrassing fact that their new tax law not only lavished the vast majority of its benefits on businesses and wealthy people, but what little benefits it did provide to everyone else are set to expire in less than eight years, whereas the most regressive parts of the new law are permanent.  Democrats and even nonpartisan analysts hammered the Republicans for being so obviously willing to prioritize the rich and comfortable over everyone else.

Republicans apparently think that they can now pull a jujitsu move, proposing to make the individual tax cuts permanent rather than expiring within the ten-year budget window.  Surely, these Republicans say with a sly grin, the Democrats who were so upset about the temporary aspects of the law will now agree to a proposal to make the individual tax cuts permanent.  And if Democrats vote no, that would supposedly prove that they really do not like middle-class tax cuts at all.

It is worth noting that even the personal cuts in the Republicans new tax law are regressive, including the egregious "pass-through loophole" that allows some rich people to artificially reduce their taxes by excluding 20 percent of their income from taxation entirely.  This is a benefit for rich people, not workers.  When the Republicans talk about making the temporary tax cuts permanent, they are trying to use the individual tax cuts as a Trojan Horse to make the pass-through rule permanent.

Even so, making the currently temporary cuts permanent certainly would be a change, and it would allow Republicans to claim that the small amounts of money that they set aside for the non-rich would at least continue past 2025.  But it is important to remember why the Republicans made the individual cuts temporary in the first place: Their tax cuts reduced future revenues so much that they had to sunset the individual cuts in order to prevent future deficits from rising even higher.

Now, Republicans are saying in essence: "Sure, we said that the 2017 bill cost $1.5 trillion" -- not including the absurd "dynamic" growth estimates that Republicans continue to believe in, against all evidence -- "but we really wanted to pass an even more expensive bill, so here we are again!"

Keep in mind that Republicans' belief in the magical effect of business tax cuts is based on the idea that such cuts will cause businesses to expand, thus reducing the overall cost of the tax cuts.  This is what "dynamic scoring" is supposed to capture, and Republicans have created economic models that invent large dynamic effects.

But "phase 2" -- or at least the cover story that Republicans are telling -- is about personal tax cuts, not business tax cuts.  That should mean that even fictional growth effects should be close to nonexistent.  And in any event, any tax revenue lost to a second phase of cuts would be added on to the cost of the original bill, giving Democrats the opening to say that the Republicans were being dishonest all along.

As a second line of argument, Democrats can also respond: "OK, so you want to make the personal tax cuts permanent?  Sure, we can do that, but let's do it in a way that doesn't cost as much money.  We'll agree to the middle-class cuts permanent if we make the stroke-the-rich elements of the new law -- including the business cuts -- temporary."

In the end, the question here is whether Republicans are right that they can always gain a political advantage by being in favor of tax cuts (and pretending that the cuts will either be directly good for non-rich people or will indirectly trickle down to them).  If the idea is to maximize the political cost to Democrats of being seen as opposing tax reductions, why would the Republicans ever pass big tax cuts when they could draw out the pain?

For example, rather than cutting the corporate tax rate from 35 percent to 21 percent in the most recent bill, why did the Republicans not propose a series of one- or two-percentage point reductions that would force Democrats to vote no again and again and again?  This would have the added advantage to Republicans of making Democrats' resistance seem petty.  "What, you can't even be convinced to reduce the rate from 35 to 33 percent?"

I can think of plenty of reasons why Republicans went for the big score, but the point is that their doing so means that even they understand that they cannot always win by making Democrats vote repeatedly against tax cuts.  Otherwise, Congress would spend all of its time voting on tax cuts.

Democrats have the public on their side in the current tax cut debate, and they can use Americans' revulsion at the Republicans' reverse-Robin Hood policies to press that advantage.  Outside of conservative fever swamps, people do not believe that every day is a good day to cut taxes.  And even if presented with the opportunity to cut non-rich people's taxes, they would surely prefer a Democratic Robin Hood plan that at the very least undoes the damage that Trump and the Republicans have recently inflicted.

4 comments:

Shag from Brookline said...

Those taxpayers making estimated tax payments for 2018 will soon find out for themselves how they are treated by the Trump/GOP 2017 tax act. A dose of no-SALT will hurt many of us.

s/v Mata Hari said...

Wouldn’t it be more accurate to say “in order to prevent selfish people from keeping more for themselves.” rather than “in order to prevent selfish people from taking more for themselves.”?

John Barron said...

Forty years of whining about deficit spending is going to take its toll. When you hear people like Rand Paul and Bob Corker whine about deficits, all you need to do is remind them that they caused 'em.

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