With Trumpcare good and dead for the time being, the administration and Republicans in Congress have a new goal they think will be much easier to accomplish: tax reform.
“Now we’re going to go for tax reform, which I’ve always liked,” President Donald Trump said shortly after the Friday demise of the GOP effort to repeal and replace former President Barack Obama’s signature health care law.
Speaker of the House Paul Ryan, too, said that the implosion of the ill-fated American Health Care Act frees up the GOP to “proceed with tax reform.” Treasury Secretary Steven Mnuchin even predicted on Friday that reforming the U.S. tax code would be “a lot simpler” than trying to get rid of Obamacare.
But there are plenty of reasons tax reform is going to be just as hard a lift for Republicans as health care turned out to be. If Trump was shocked – shocked! – to discover that health care policy is complicated, just wait until he wades into a debate over the tax code.
For starters, the failure of the GOP’s health care bill actually buggers up the numbers for its tax reform effort all on its own, because repealing Obamacare was actually a gigantic tax cut in itself, offset by hundreds of billions of dollars in spending reductions, largely to Medicaid.
By doling out those tax breaks – which would have mostly helped out the very richest Americans – and paying for them, if you will, by eliminating money that provides health care to lower-income people, the GOP intended to move the baseline for tax revenue in a more favorable direction, thus allowing it to reduce the budget hole blown by its tax reform bill.
Now, though, the GOP either has to leave the taxes in Obamacare in place, or remove them but find something other than gutting Medicaid to cover up the resulting cost. Have fun with that. And there are other cost complications that could also beguile the tax reform effort. Republicans plan to use the process known as budget reconciliation to pass their tax package, which means Democrats won’t be able to filibuster it, but also that can’t have a deficit-increasing effect outside of a 10-year budget window. So Republicans will either have to sunset their tax cuts after 10 years, ala the Bush tax cuts, or they have to find enough offsets via eliminating other deductions, credits or tax giveaways so as to make their package deficit neutral. Considering that outside analyses of tax plans proffered by both Trump and congressional Republicans show they would lower revenues by trillions and trillions of dollars in those years beyond a decade, that’s a whole lot of offsetting to be done.
And therein lies the biggest problem the GOP is going to have: Everyone loves the idea of tax reform, but no one likes losing the tax break from which they benefit most. In theory, the idea of lower, simpler taxes always sounds appealing; in practice, once Republicans get into the nitty-gritty about which loopholes and other bits of nonsense they want to eliminate in order to not completely eviscerate federal revenue, lobbyists are going to descend upon them like mother bears protecting their cubs.
This is particularly true on the corporate side of the tax code. While nearly everyone in Washington bemoans that the U.S. has a high corporate tax rate on paper, they tend to yadda yadda past the fact that U.S. corporations actually pay pretty average rates compared to the rest of the developed world thanks to the smorgasbord of goodies left for them up and down the code. And every one of those giveaways has a corporate heavyweight behind it willing to go to the mat. Just look at the Republican suggestion that the U.S. adopt what’s known as a “border adjustment tax” to help offset some other corporate tax changes they want to make. Retailers such as Walmart and Target, along with domestic energy companies, went nuts – they even put out fun ads about it!
Does anyone think Trump – who apparently got bored with health care after a few weeks and was relieved to see the GOP’s whole effort implode in on itself – is really going to get invested in the details of a tax overhaul, which can be just as mind-numbing? He likes big trucks, not discussion about the deductibility of state and local taxes or the costs of depreciation rules. And he’ll have corporate bigwigs whispering in his ear about how whatever tax break is on the chopping block is actually vital to America’s greatness. So the fault lines within the Republican caucus on tax reform will certainly be different, and maybe even much shallower, than they were on health care, but they’re there all the same.