President-elect Donald Trump and congressional Republican leaders are preparing to merge their proposals on tax reform next year and then ramming them through Congress with a budget process that would defy Democratic resistance.
Trump and House Speaker Paul Ryan (R-WI) have both devised detailed descriptions of what they want to achieve. And while they are not identical, both approaches would provide massive tax cuts for individuals and businesses – especially for the wealthiest Americans -- and contribute substantially to the long-term debt absent real offsetting cuts and savings.
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As a foretaste of what they have in mind, Republicans intend to use arcane budget reconciliation rules in the Senate and House to push through legislation dismantling the Affordable Care Act next month. Their idea is to repeal Obamacare now wait for at least two years to come up with a suitable replacement.
And because of the special budget rules invoked, they will be able to pass the legislation with a simple majority vote instead of the 60-vote super majority typically required to get anything passed in the Senate. They will essentially be hijacking a fiscal 2018 budget bill and using it as the vehicle for the expedited process.
On Monday, Senate Majority Leader Mitch McConnell (R-KY) confirmed that the Republicans intend to use that same expedited budget process to attempt to pass comprehensive tax reform legislation next spring.
The Congressional Budget Act permits lawmakers to use reconciliation for legislation that changes spending, revenues, and the federal debt limit. However, reconciliation has traditionally been viewed as mostly a means of enacting deficit-reduction legislation, according to the Center on Budget and Policy Priorities.
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Congress has used it on occasion to expedite passage of tax cuts that have increased deficits – as the Republicans did in passing major tax cuts proposed by GOP President George W. Bush.
This time around, the reconciliation bill will include specific instructions to the House and Senate tax-writing committees to technically change the tax code to reduce the deficit. They would do this, presumably, by projecting accelerated economic growth from the tax cuts that would generate new revenues to offset the total cost of the plan.
“I think using reconciliation for long-term tax cuts violates the spirit of reconciliation, although it does not violate the letter of the law,” William G. Gale, a senior fellow in economic studies at the Brookings Institution, said in an interview Monday.
While the Republicans technically can use reconciliation to adopt a major change in the federal tax code, he added, it might turn out to be a strategic mistake. That’s because it would preclude the possibility of some Democrats joining with them to give the legislation a bipartisan sheen.
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And if they rely strictly on Republican support to push the bill through the Senate, they could be running the risk of a small handful of GOP senators defecting and stopping the legislation in its tracks. The Republicans will hold a narrow 52 to 48 seat majority beginning in January. While the GOP appears near unanimous on the need to make good on its pledge to repeal Obamacare, there is far less unity on the issues of tax reform.
“If they only get Republican support, they’re going to need near-unanimous Republican support,” added Gale, the co-director of the Urban-Brookings Tax Policy Center. “So a [Trump-promoted] tax on imports and denial of interest deductions from the right … makes it hard for me to believe that the bill will pass on a party-line basis.”
What’s more, incoming Senate Minority Leader Chuck Schumer (D-NY) and other Democrats in the Senate and House have voiced interest in working on rewriting the tax code on a bipartisan basis. McConnell and Ryan may have a tough time slamming the door on Democratic input considering the complexity and controversial nature of reworking tax code.
McConnell said he prefers a “revenue-neutral” tax package – meaning it would neither add to nor subtract from the deficit. But that would seem improbable in light of independent analyses of the plans tentatively offered by Trump and Ryan.
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The sheer magnitude of the proposed tax cuts and the highly optimistic economic assumption that accompany the plans have deficit hawks uneasy. The Urban-Brookings Tax Policy Center says the House plan “would cut taxes at every income level in 2017, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income.”
The Trump proposal, by comparison, “would cut the average tax bill in 2017 by $2,940, increasing after-tax income by 4.1 percent. Yet the wealthiest taxpayers with incomes over $3.7 million in 2016 dollars would receive an average tax cut of nearly $1.1 million, or over 14 percent of after-tax income.
The Committee for a Responsible Federal Budget, a prominent anti-deficit organization, has complained that Trump’s overall policy agenda is far from “fiscally responsible.” And on the subject of tax cuts in particular, “our estimate shows his tax policies would cost about $4.5 trillion over a decade.”
In his remarks to reporters at the Capitol, McConnell raised the possibility of using budget reconciliation for other GOP priorities as well -- such as undoing financial regulations imposed by executive order of President Obama or under the Dodd-Frank law. Trump made tax cuts and the slashing of government red tape high priorities throughout his campaign against Democrat Hillary Clinton.
“The President-elect has made it very clear he’s going to move on as many regulatory changes as he can make as soon as he takes office,” McConnell said according to the Morning Consult.
“The two biggest impediments to growth in our country are overregulation and the tax structure,” McConnell continued. “And the President-elect seems to be committed to addressing both of those. And the Republican majorities in the House and the Senate are as well.”