When is a tax cut more than just a tax cut? When it’s a GOP tax cut. Because when the GOP cuts taxes, it’s never just an attempt to cut taxes because tax cuts are just one element of the GOP’s much larger agenda of creating a society run by and for the super-rich. And because few people, even Republican voters, actually want a society that’s run by and for the super-rich, massive amounts of propaganda and deception are part of the tax cut package too. It’s why GOP tax cuts tend to be so much more than just tax cuts for the rich. They’re Big Lies designed to fool society into dismantling itself.
So it should come as a surprise to no one that the current tax cut barreling its way through the GOP controlled congress is an abomination being sold to the public by a web of lies that represent an inversion of the truth. But what is genuinely surprising about the current GOP tax push is just how shoddy that web of lies is turning out to be this time. Perhaps it shouldn’t be surprising given the political disaster that the GOP’s multiple failed attempts to overturn Obamacare turned out to be, where less than 1 in 5 voters actually approved of ‘Trumpcare’ once they learned about Trumpcare’s details and this was the case for both the House and Senate versions of Trumpcare [1]. The GOP clearly has problems crafting legislation that it can at least try and pretend is ‘for the people’ these days so troubles crafting the tax cuts aren’t particularly surprising. But as we’re going to see, the Trump tax cut are turning out to be so politically toxic that it’s very possible that the GOP’s tax bill will end up being even more politically poisonous than ‘Trumpcare’. And that is genuinely surprising. It’s almost as if the failure to pass Trumpcare only increased the resolve of America’s right-wing oligarchs to vindictively pass legislation that’s even more awful [2]:
Associated Press
Ultra-Rich Win Big Under GOP Tax Bill; Taxes Rise For Everyone Else
By MARCY GORDON
Published November 18, 2017 9:28 amWASHINGTON (AP) — The ultra-wealthy, especially those with dynastic businesses — like President Donald Trump and his family — do very well under a major Republican tax bill moving in the Senate, as they do under legislation passed this week by the House.
Want to toast the anticipated tax win with champagne or a beer — or maybe you’re feeling Shakespearean and prefer to quaff mead from a pewter mug? That would cheer producers of beer, wine, liquor — and mead, the ancient beverage fermented from honey. Tax rates on their sales would be reduced under the Senate bill.
On the other hand, people living in high-tax states, who deduct their local property, income and sales taxes from what they owe Uncle Sam, could lose out from the complete or partial repeal of the deductions. And an estimated 13 million Americans could lose health insurance coverage over 10 years under the Senate bill.
Some winners and losers:
__WINNERS
— Wealthy individuals and their heirs win big. The hottest class-warfare debate around the tax overhaul legislation involves the inheritance tax on multimillion-dollar estates. Democrats wave the legislation’s targeting of the tax as a red flag in the face of Republicans, as proof that they’re out to benefit wealthy donors. The House bill initially doubles the limits — to $11 million for individuals and $22 million for couples — on how much money in the estate can be exempted from the inheritance tax, then repeals it entirely after 2023. The Senate version also doubles the limits but doesn’t repeal the tax.
Then there’s the alternative minimum tax, a levy aimed at ensuring that higher-earning people pay at least some tax. It disappears in both bills.
And the House measure cuts tax rates for many of the millions of “pass-through” businesses big and small — including partnerships and specially organized corporations — whose profits are taxed at the owners’ personal income rate. That’s potential cha-ching for Trump’s far-flung property empire and the holdings of his daughter Ivanka and her husband, Jared Kushner. The Senate bill lets pass-through owners deduct some of the earnings and then pay at their personal income rate on the remainder.
— Corporations win all around, with a tax rate slashed from 35 percent to 20 percent in both bills — though they’d have to wait a year for it under the Senate measure. Trump and the administration view it as an untouchable centerpiece of the legislation.
— U.S. oil companies with foreign operations would pay reduced taxes under the Senate bill on their income from sales of oil and natural gas abroad.
— Beer, wine and liquor producers would reap tax reductions under the Senate measure.
— Companies that provide management services like maintenance for aircraft get an updated win. The Senate bill clarifies that under current law, the management companies would be exempt from paying taxes on payments they receive from owners of private jets as well as from commercial airlines. That was a request from Ohio Sens. Rob Portman, a Republican, and Sherrod Brown, a Democrat, whose state is home to NetJets, a big aircraft management company.
Portman voted for the overall bill. Brown opposed it.
__LOSERS
— An estimated 13 million Americans could lose health insurance coverage under the Senate bill, which would repeal the “Obamacare” requirement that everyone in the U.S. have health insurance. The projection comes from the nonpartisan Congressional Budget Office. Eliminating the fines is expected to mean fewer people would obtain federally subsidized health policies.
— People living in high-tax states would be hit by repeal of federal deductions for state and local taxes under the Senate bill, and partial repeal under the House measure. That result of a compromise allows the deduction for up to $10,000 in property taxes.
— Many families making less than $30,000 a year would face tax increases starting in 2021 under the Senate bill, according to Congress’ nonpartisan Joint Committee on Taxation. By 2027, families earning less than $75,000 would see their tax bills rise while those making more would enjoy reductions, the analysts find. The individual income-tax reductions in the Senate bill would end in 2026.
———-
“Wealthy individuals and their heirs win big. The hottest class-warfare debate around the tax overhaul legislation involves the inheritance tax on multimillion-dollar estates. Democrats wave the legislation’s targeting of the tax as a red flag in the face of Republicans, as proof that they’re out to benefit wealthy donors. The House bill initially doubles the limits — to $11 million for individuals and $22 million for couples — on how much money in the estate can be exempted from the inheritance tax, then repeals it entirely after 2023. The Senate version also doubles the limits but doesn’t repeal the tax.”
As we can see, the wealthy and their heirs are the big winners in both the House and Senate versions of the bills. Surprise!
But don’t forget that it’s not just things like the elimination of the estate tax or cuts to the individual rates for the wealthy that are going to make this tax cut a giant gift to the wealthy. The massive cut to the corporate tax, from 35 to 20 percent, also counts as a massive tax cut for the rich given the reality that 80 percent of the stock market wealth in the US is owned by the wealthiest 10 percent [3] and the top 1% of Americans own 38 percent the US’s wealth overall [4]. When the rich own almost everything you can’t cut corporate taxes without cutting taxes disproportionately for the rich and that permanent corporate tax cut down to 20 percent is part of both the House and Senate bills.
But while it’s clear that both the House and Senate versions of the bill represent a massive redistribution of wealth towards the already-wealthy, there are still a number of differences between the House and Senate versions and at some point those differences are going to have to be resolved. And as we’re going to see, the resolution of those differences isn’t going to be easy for two key interrelated reasons:
1. The Senate’s “Byrd rule” needs to be followed to in order to pass legislation in the Senate with a simple majority vote of 51 Senators, avoiding the 60-vote threshold to overcome a filibuster. And the Byrd rule stipulates that new spending legislation must be budget-neutral over the next 10 years. That’s a pretty big ‘catch’ to the Byrd rule when you’re planning a massive tax giveaway for corporations and the wealthy.
and
2. The GOP’s tax cuts are not remotely budget-neutral...unless you decide to drink the ‘trickle-down’ supply-side economics Kool-Aid and choose to believe the fantasy that massive tax cuts for the wealthy will permanently turbo-charge the US economy. The vast majority of economists believe no such fantasy, and with good reason given that historical evidence doesn’t support it (it’s not like this will be the first time the US has given the rich a massive tax cut). But unless the GOP can successfully sell the US on the notion that massive tax cuts for the rich and corporations will result in a large and permanent increase in the growth of the US economy it’s going to be very difficult for the GOP to construct a tax plan that cuts taxes on the wealthy and corporations that’s budget neutral. The math just won’t work without the ‘trickle-down’ Kool-Aid.
And that Byrd rule requirement that the Senate alone faces is key driver for the differences we’re going to see between the House and Senate versions of the tax cuts: the House doesn’t need to adhere to the Byrd rule, so its version of the bill involves a lot more cuts with a higher explosion of public debt. The Senate version, on the other hand, has to somehow find a way to balance out the tax cuts for the wealthy with new revenues that somehow all balance out within a decade. And in order find that balance the Senate bill actually ends up raising taxes on the poor and middle-class and Democratic-leaning states. And also encourages poor-people to drop their subsidized health insurance. Yep, that’s how the Senate version of the bill passes the Byrd rule. By passing the cost of the tax cuts for the wealthy on to the middle-class, the poor, and ‘Blue states’.
So with that critical distinction between the House and Senate bills in mind — the Senate needs to follow the Byrd rule and avoid exploding the deficit, the House doesn’t — it’s worth taking a closer look at the various similarities and differences between the House and Senate versions of the bill. They are both extremely generous to the wealthy and corporations, but the House version tends to be somewhat more generous without trying to cover the cost of that generosity: Both versions also eliminate the the alternative minimum tax (meaning a lot of wealthy people will be allowed to pay almost nothing in taxes) and both versions double the the inheritance tax exemption from estates worth $11 million up to $22 million right away, but only in the House version has the entire estate tax expire in 2023. Also, both versions cuts in the tax rate for “pass-through” businesses — where profits are taxed at the personal income tax rate (which tends to be higher than the corporate tax rate for wealth individuals) — but the House version is particularly nice to the wealthy who own pass-through corporations:
...
Then there’s the alternative minimum tax, a levy aimed at ensuring that higher-earning people pay at least some tax. It disappears in both bills.And the House measure cuts tax rates for many of the millions of “pass-through” businesses big and small — including partnerships and specially organized corporations — whose profits are taxed at the owners’ personal income rate. That’s potential cha-ching for Trump’s far-flung property empire and the holdings of his daughter Ivanka and her husband, Jared Kushner. The Senate bill lets pass-through owners deduct some of the earnings and then pay at their personal income rate on the remainder.
...
An elimination of the estate tax and and a with a 25 percent tax rate for “pass-through” corporations [5]. Yeah, the House version of the bill is going to be mighty nice for people like Ivanka Trump and Jared Kushner. And it’s not like the Senate version isn’t still wildly generous to Jared and Ivanka. It’s not quite as generous.
And look one of the major ways the Senate version helps pay for cost all these goodies for the wealthy: by repealing the “Obamacare” mandate, the requirement that US adults purchase health insurance or face a small annual fine. The Senate version complies with the Byrd rule by assuming that repealing the Obamacare mandate will result in an estimate 13 million Americans dropping their health insurance coverage. Coverage that is typically government subsidized. The tax cuts for the rich are paid for with less health care for the poor. That’s how the Senate bill is literally designed. And that’s on top of the Senate’s plan to have taxes on people making less than $75,000 actually rise at the end of 10 years:
...
— An estimated 13 million Americans could lose health insurance coverage under the Senate bill, which would repeal the “Obamacare” requirement that everyone in the U.S. have health insurance. The projection comes from the nonpartisan Congressional Budget Office. Eliminating the fines is expected to mean fewer people would obtain federally subsidized health policies.— People living in high-tax states would be hit by repeal of federal deductions for state and local taxes under the Senate bill, and partial repeal under the House measure. That result of a compromise allows the deduction for up to $10,000 in property taxes.
— Many families making less than $30,000 a year would face tax increases starting in 2021 under the Senate bill, according to Congress’ nonpartisan Joint Committee on Taxation. By 2027, families earning less than $75,000 would see their tax bills rise while those making more would enjoy reductions, the analysts find. The individual income-tax reductions in the Senate bill would end in 2026.
...
The Senate GOP’s giant tax cut is set to raise taxes on the poor to pay for tax cuts for the rich and corporations. It’s that bad and that blatant. With the House version we don’t find as many tax hikes on the poor and middle-class, but it just ends up blowing up the national debt more instead. But the the middle-class and poor don’t fair much better with the House bill, where middle-class tax cuts expire and only 40 percent of Americans will still see lower taxes by 2023, along with popular deductions like the mortgage deduction in the House version [6].
House Leadership to GOPers: Don’t Trash the Senate Bill (Because it’s Probably Closer to the Final Bill)
But despite all the similarities between the two versions of the bill — they both shower corporations and the wealthy with tax treats and make the poor and middle-class pay for them — there are still significant differences. So which version should we expect to win out? Well, since the Byrd rule still applies to the final version of the bill that the Senate has to vote on — the version the House and the Senate create in conference after the different versions of the bill are passed by each chamber — it’s hard to see how the Senate’s version isn’t going to be a lot closer to the final version of the bill because that’s the only way the final version can still comply with the Byrd rule. And that’s why it’s no surprise that we have reports that the House leadership told lawmakers not to bash the Senate tax bill which is making some House members feel like the eventual plan for the House is to make their version of the tax cut look a lot more like the Senate version [7]:
Vox
The House just passed its tax reform plan. It’s drastically different from the Senate’s.
by Tara Golshan Nov 16, 2017, 1:51pm EST Updated
House Republicans passed their tax reform plan Thursday afternoon 227–205 — on a day marked by a visit from President Donald Trump — with only 13 Republicans voting against it.
It was a big day for House Speaker Paul Ryan. On the surface, the proposal, which dramatically cuts taxes for corporations, doubles the standard deduction, and consolidates the individual tax rates, among other changes, has moved swiftly through the House without much drama. “This is Ryan’s bill,” Rep. Pete Sessions (R‑TX) told reporters.
But behind the cheers and celebration, there’s a clear sense that this vote doesn’t say much about the state of tax reform as a whole — a debate that, despite the insistence of Republican leadership and their allies, is still unresolved.
As the House passed its bill, on the other side of the Capitol Building the Senate continues to mark up its own tax reform proposal — one that looks very different from the House’s.
“It is interesting to me that the ‘Big Six’ worked for nine months on getting on the same sheet of music on tax reform, and [to] have it be this dynamically different as it is rolled out — it’s a bit of a surprise,” Rep. Mark Meadows (R‑NC) told Vox of the group of top senators, House members, and Trump administration officials who brainstormed a framework for tax reform.
Going into the vote, House leadership told lawmakers not to bash the Senate tax bill — a move that has made some feel like the plan is to adopt a lot more of the Senate bill. Already, some of the differences are making House Republicans grumble. The Senate fully repeals the state and local income and property tax deduction, cuts health care, and sunsets tax relief for individual Americans in order to pay for corporate tax cuts.
“You’re rewriting a tax code for a generation, and you are doing it in 10 days, and then to be dismantling health care without any debate at all could have unintended consequences,” Rep. Peter King (R‑NY), who voted against the House bill, said. “In [1986] it took two years to put together a tax reform bill; they’re doing it in 10 days.”
We still don’t know exactly what tax reform will look like — but Republicans are moving fast
“It seems to be pretty significant differences,” King told Vox Wednesday of the House and Senate tax reform proposals.
“Especially because you have to get it done in such a short amount of time. Any changes to the tax bill has significant consequences,” he continued.
The day before the House vote, some members cast last-minute doubts on the math, HuffPost reported [8], questioning whether the typical family of four would actually get an average cut of $1,182, as Republican leadership keeps touting.
There’s no question that Republicans have been grappling with a major math problem with their tax bill, searching for budget gimmicks and rosy analyses to make the proposal add up and comply with the Senate budget rules. The House’s bill fails to hew to crucial Senate budget rules — making the proposal untenable in the upper chamber. Members seem to be aware of this dilemma.
“My must-changes are I just want the math to work,” Rep. David Schweikert (R‑AZ) said of bringing the House and Senate bills together.
The math solutions in the Senate have proved politically difficult.
The Senate bill leaves many of the deductions the House repeals untouched, and instead repeals Obamacare’s individual mandate, phases in the corporate tax cut, increases the child tax credit, fully repeals the state and local tax deduction, keeps the seven tax brackets — instead of the House’s four — and sunsets almost all of the tax relief for individual Americans by 2025.
By Wednesday, one senator, Ron Johnson (R‑WI), had already come out against the Senate’s bill, saying it helped corporations more than small businesses and families. Several more crucial senators have been tight-lipped about their feelings. A recent distributional analysis from the Joint Committee on Taxation found that the Senate’s proposal, which sunsets the individual tax reforms to pay for a corporate tax cut, would raise taxes on the poor by 2021 and across the board in 2027.
Are corporate tax cuts enough to keep Republicans together? It’s starting to look like it.
There is one policy that is unifying the Republican ranks: They really want to cut the corporate tax rate [9]. It’s the centerpiece of every plan they have released in both the House and the Senate, and they’ve spent weeks floating wildly unpopular ways to pay for it.
“It’s in all of our best interest to have these tax cuts for corporations so that they will have more money to invest in their business and pay their workers,” Rep. Mike Conaway (R‑TX) told Vox.
Lowering the corporate tax from its current 35 percent to 20 percent, as Republicans are proposing, is costly — in the context of the current bill, the Joint Committee on Taxation [10] estimates it would cost $1.33 trillion over 10 years. Republicans argue that this cost will be partially offset through incredible economic growth — pushing corporations to invest more in their workers and bring more jobs back to the United States. And most economists believe that temporary corporate cuts do little or nothing to boost economic growth [11], because corporations can’t count on the cuts in the future.
So even the most vulnerable Republican lawmakers from states like New York, New Jersey, and California that are adversely impacted by both the House and Senate proposals to pay for the permanent corporate tax cut are prioritizing doing so.
“Overall there is much more substantive tax policy that is in agreement,” Rep. Tom Reed (R‑NY) said of the ideology behind the Senate and House bills, making a case for a permanent corporate tax cut. “From a growth perspective on the business side, the less you can rely on having a long-term planning capability and making those investments long term, I would say that has a little more negative impact.”
Still, corporate rate cuts also have a lot of potential to be politically expensive.
Sixty percent of registered voters [12] think corporations pay “too little” in taxes, according to a September poll from Morning Consult and Politico surveying a little under 2,000 Americans. A more recent [13] Morning Consult/Politico survey from October found only 39 percent of Americans think lowering the corporate tax rate should be part of the tax plan — with 59 percent of Republican voters supporting it. Another poll from Pew Research Center [14] showed that 53 percent of Republicans think corporate tax rates should either be raised or stay the same.
...
———-
“Going into the vote, House leadership told lawmakers not to bash the Senate tax bill — a move that has made some feel like the plan is to adopt a lot more of the Senate bill. Already, some of the differences are making House Republicans grumble. The Senate fully repeals the state and local income and property tax deduction, cuts health care, and sunsets tax relief for individual Americans in order to pay for corporate tax cuts.”
‘Don’t bash the bill we might have to vote for!’ That was the implied message from House GOP leaders following the passage of the House’s own bill. And that means a lot of the highly unpopular features of the Senate’s version — like the full repeal of state and local taxes deductions and property tax deductions — are probably going to be things the House GOPers eventually have to vote for. Best not to bash the ideas you’re going to have to vote for:
...
There’s no question that Republicans have been grappling with a major math problem with their tax bill, searching for budget gimmicks and rosy analyses to make the proposal add up and comply with the Senate budget rules. The House’s bill fails to hew to crucial Senate budget rules — making the proposal untenable in the upper chamber. Members seem to be aware of this dilemma.“My must-changes are I just want the math to work,” Rep. David Schweikert (R‑AZ) said of bringing the House and Senate bills together.
The math solutions in the Senate have proved politically difficult.
The Senate bill leaves many of the deductions the House repeals untouched, and instead repeals Obamacare’s individual mandate, phases in the corporate tax cut, increases the child tax credit, fully repeals the state and local tax deduction, keeps the seven tax brackets — instead of the House’s four — and sunsets almost all of the tax relief for individual Americans by 2025.
...
Fully repealing state and local tax deductions and property tax deductions — something that will hammer people living higher-tax ‘Blue’ states where property values also tend to be higher — is something that all GOPers in the House and Senate are probably going to end up having to vote for in order to pay for permanent cuts to the taxes for the wealthy and corporations. Including the GOPers from those Blue states that are about to get hammered. It’s not exactly great politics.
And yet it appears that ‘Blue state’ and ‘Red state’ Republicans are largely united behind this tax cut push. United by a desire to slash corporate taxes, the centerpiece of both bills:
...
Are corporate tax cuts enough to keep Republicans together? It’s starting to look like it.There is one policy that is unifying the Republican ranks: They really want to cut the corporate tax rate [9]. It’s the centerpiece of every plan they have released in both the House and the Senate, and they’ve spent weeks floating wildly unpopular ways to pay for it.
“It’s in all of our best interest to have these tax cuts for corporations so that they will have more money to invest in their business and pay their workers,” Rep. Mike Conaway (R‑TX) told Vox.
Lowering the corporate tax from its current 35 percent to 20 percent, as Republicans are proposing, is costly — in the context of the current bill, the Joint Committee on Taxation [10] estimates it would cost $1.33 trillion over 10 years. Republicans argue that this cost will be partially offset through incredible economic growth — pushing corporations to invest more in their workers and bring more jobs back to the United States. And most economists believe that temporary corporate cuts do little or nothing to boost economic growth [11], because corporations can’t count on the cuts in the future.
So even the most vulnerable Republican lawmakers from states like New York, New Jersey, and California that are adversely impacted by both the House and Senate proposals to pay for the permanent corporate tax cut are prioritizing doing so.
...
“There is one policy that is unifying the Republican ranks: They really want to cut the corporate tax rate [9]. It’s the centerpiece of every plan they have released in both the House and the Senate, and they’ve spent weeks floating wildly unpopular ways to pay for it.”
Permanently slashing corporate tax rates from 35 to 20 percent: It’s the one element that both the House and Senate GOPers insist upon for any final version of the bill. The tax cuts for the wealthy or tax hikes on everyone else are up for the debate but those corporate tax rates of 20 percent must be there in in the final version. And it’s that unified desire to delivery corporations this massive tax goodie that is guaranteeing so much pain elsewhere. Because as the following article notes, there is simply no way to make this corporate tax cut pay for itself, even if you eliminate every corporate tax loophole [15]:
Vox
The Republican tax plan’s original sin
A giant, unpopular, unworkable business tax cut.Updated by Matthew Yglesias
Nov 6, 2017, 9:00am ESTPaul Ryan, speaking to CNN about the tax overhaul bill the passed earlier this month, says “the whole purpose of this is a middle-class tax cut.” That’s in line with the rhetoric Donald Trump deployed on the campaign trail, in line with public opinion polling about what voters want, and reflects a kind of common sense conservatism on economic policy that says what typical Americans could most use from the government is to keep more of their hard-earned cash rather than some big new government programs.
Ryan and his team have even cooked up a model family — a mom, dad, and two kids getting by on the national median household income — who stand to reap a windfall of $1,182 per year from the plan.
I don’t envy the partisans tasked with messaging against giving middle income families (family of four making $59K) $1,182 back. #1182more [16]
— AshLee Strong (@AshLeeStrong) November 2, 2017 [17]
Unfortunately for the American middle class, Ryan is lying. The hypothetical family his top spokesperson AshLee Strong described would get a tax cut of almost $1,200 — for one year. It gets smaller in year two, smaller still in year three, smaller still in year four, and smaller still in year five. It nearly vanishes in the sixth year of the Ryan tax plan, and in years seven, eight, nine, and 10 the family would be paying higher taxes than under current law. That tax hike is not only permanent, it actually grows over time because of a change to the inflation indexing of tax brackets.
On average, over the entire 10-year scoring window, the family would get a total tax cut of $3,550. Yet over the same time period, the national debt would grow by $4,644 per person — or about $18,500 for a family of four.
There’s nothing wrong with running a budget deficit if you’re accomplishing something worthwhile. But to go $18,500 in debt in order to secure a $3,550 tax cut is preposterous. And yet something like that is an inevitable consequence of the Republican tax plan’s original decision — an unpopular and unworkable scheme to reduce the corporate income tax rate from 35 percent to 20 percent.
Real corporate tax reform is a reasonable idea
The basic story with the corporate income tax in the United States is that the statutory rate of 35 percent is one of the highest of any rich country, but there are so many corporate tax loopholes that companies on average only actually pay in the mid-to-high 20s.
Under the circumstances, there’s a strong case for corporate income tax reform. By eliminating a bunch of deductions you should able to significantly reduce corporate tax rates without increasing the budget deficit. That would make the conduct of business in the United States both fairer and more efficient by treating all forms of business activity more equally. That, in turn, should provide a modest boost to economic growth as well as eliminating some hassles and wasted time in terms of tax compliance.
The Obama administration looked at this and concluded that there was a reasonable reform path to cutting from 35 percent to 28 percent while raising some revenue.
Mitt Romney’s presidential campaign in 2012 looked at it and concluded more aggressively that there was a reform path to cutting from 35 percent to 25 percent while probably losing some revenue.
Republicans copied a number from another plan
But House Republicans looked at Romney’s plan and decided to cut 5 percentage points lower — all the way down to 20 percent — even though there’s no way to make that work. Remember, the effective corporate income tax rate paid in the United States is somewhere in the high 20s, varying a bit from year to year. Even if you closed every single deduction you couldn’t get down to 20. And nobody really wants to close every single deduction anyway. So in the long run, the 20 percent target simply isn’t workable without raising taxes on individuals — which is why Strong’s favorite family’s tax cut eventually goes away and becomes a tax hike.
...
A year ago, the people involved in drafting the plan were completely aware of the mathematical realities. That’s why they weren’t proposing a 20 percent corporate income tax rate. Instead, they proposed eliminating the corporate income tax as we know it altogether and replacing it instead with a destination-based cash flow tax (DBCFT).
This was basically a broad 20 percent national consumption tax — similar to a retail sales tax except levied on services as well as goods — partially offset by a big payroll tax cut. The result, on net, would be a tax on consumption that was financed out of past savings. This was an idea with some merit that ended up being derailed by public and congressional confusion about its border adjustment provisions, though I think it would have died anyway once members of Congress understood its implications for non-poor retirees. The key point, however, is that the 20 percent DBCFT was not the same thing as a 20 percent corporate income tax.
Indeed, I assume that if Republicans had thought they were the same thing, they wouldn’t have gone through the trouble of inventing a whole new kind of tax! But having dropped the DBCFT idea, Republicans didn’t rethink the rest of their plan. They just copied the number “20” over from one tax plan to another and tried to make the math work based on a 20 percent corporate income tax rate.
But the math doesn’t work. The business tax cuts in the GOP plan add $1 trillion to the deficit over 10 years, accounting for two-thirds of the total net tax cutting. And with plenty of tax cuts for rich people also in the plan, that leaves Republicans raising taxes on many families and increasing the deficit.
Now they’re stuck with an unpopular, unworkable nightmare
There are at least two big problems with the approach House Republicans ended up taking. One is that it’s ridiculously unpopular. Only 24 percent of the public says we should have a corporate tax cut [18], and that’s without considering any tradeoffs.
A lot of the individual contentious measures in the GOP plan are defensible in at least some contexts. But to eliminate a tax credit for adopting a child while raising taxes on PhD programs and curtailing the homebuilding industry is a tough sell if the purpose of it all is to pass a big unpopular corporate tax cut.
But it gets worse. Even with a bunch of popular tax breaks going away, and even with Strong’s sample family eventually facing a future of endlessly escalating tax increases, the corporate tax cut is so huge that it blows a hole in the long-term budget deficit in a way that violates Senate rules. So the House bill not only has a profoundly unpopular trade-off at its heart — it literally cannot pass the Senate without substantial changes. Which means if they’re smart, House Republicans will stop and make some serious changes of their own rather than just plowing ahead.
If.
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“The Republican tax plan’s original sin” by Matthew Yglesias; Vox; 11/06/2017 [15]
“Unfortunately for the American middle class, Ryan is lying. The hypothetical family his top spokesperson AshLee Strong described would get a tax cut of almost $1,200 — for one year. It gets smaller in year two, smaller still in year three, smaller still in year four, and smaller still in year five. It nearly vanishes in the sixth year of the Ryan tax plan, and in years seven, eight, nine, and 10 the family would be paying higher taxes than under current law. That tax hike is not only permanent, it actually grows over time because of a change to the inflation indexing of tax brackets.”
Yep, House Speaker Paul Ryan is blatantly lying when he claims that this tax cut bill is all about tax cuts for the American middle-class. The way the House version works, the tax cuts start eroding after the first year, are nearly completely gone by year six, and taxes rise for middle-class families after year seven. And just keep on rising. So that hypothetical middle-class family of four will get a total tax cut of $3,550 (which expires), while the national debt rises $4,644 per person (including the two kids in this family of four). It’s a giant scam. And it’s the kind of scam that is utterly unavoidable given the corporate tax cut:
...
On average, over the entire 10-year scoring window, the family would get a total tax cut of $3,550. Yet over the same time period, the national debt would grow by $4,644 per person — or about $18,500 for a family of four.There’s nothing wrong with running a budget deficit if you’re accomplishing something worthwhile. But to go $18,500 in debt in order to secure a $3,550 tax cut is preposterous. And yet something like that is an inevitable consequence of the Republican tax plan’s original decision — an unpopular and unworkable scheme to reduce the corporate income tax rate from 35 percent to 20 percent.
...
“There’s nothing wrong with running a budget deficit if you’re accomplishing something worthwhile. But to go $18,500 in debt in order to secure a $3,550 tax cut is preposterous. And yet something like that is an inevitable consequence of the Republican tax plan’s original decision — an unpopular and unworkable scheme to reduce the corporate income tax rate from 35 percent to 20 percent.”
And notice how it would have been possible for the GOP to cut corporate taxes pretty significantly without requiring these stealth middle-class tax hikes simply by closing corporate tax loopholes. Mitt Romney only proposed a cut to 25 percent during his 2012 election and even the Obama administration concluded that corporate taxes could have dropped from 35 to 28 percent without any drop of tax revenues simply by closing loopholes. But the GOP now feels compelled to drop it all the to 20 percent instead, hence the need for those middle-class tax hikes:
...
Under the circumstances, there’s a strong case for corporate income tax reform. By eliminating a bunch of deductions you should able to significantly reduce corporate tax rates without increasing the budget deficit. That would make the conduct of business in the United States both fairer and more efficient by treating all forms of business activity more equally. That, in turn, should provide a modest boost to economic growth as well as eliminating some hassles and wasted time in terms of tax compliance.The Obama administration looked at this and concluded that there was a reasonable reform path to cutting from 35 percent to 28 percent while raising some revenue.
Mitt Romney’s presidential campaign in 2012 looked at it and concluded more aggressively that there was a reform path to cutting from 35 percent to 25 percent while probably losing some revenue.
Republicans copied a number from another plan
But House Republicans looked at Romney’s plan and decided to cut 5 percentage points lower — all the way down to 20 percent — even though there’s no way to make that work. Remember, the effective corporate income tax rate paid in the United States is somewhere in the high 20s, varying a bit from year to year. Even if you closed every single deduction you couldn’t get down to 20. And nobody really wants to close every single deduction anyway. So in the long run, the 20 percent target simply isn’t workable without raising taxes on individuals — which is why Strong’s favorite family’s tax cut eventually goes away and becomes a tax hike.
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“But House Republicans looked at Romney’s plan and decided to cut 5 percentage points lower — all the way down to 20 percent — even though there’s no way to make that work. Remember, the effective corporate income tax rate paid in the United States is somewhere in the high 20s, varying a bit from year to year. Even if you closed every single deduction you couldn’t get down to 20. And nobody really wants to close every single deduction anyway. So in the long run, the 20 percent target simply isn’t workable without raising taxes on individuals — which is why Strong’s favorite family’s tax cut eventually goes away and becomes a tax hike.”
And even with those middle-class tax cuts, the cost of the corporate tax cuts still aren’t covered. Hence the House version’s deficit explosion, a violation of the Senate Byrd rule:
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But it gets worse. Even with a bunch of popular tax breaks going away, and even with Strong’s sample family eventually facing a future of endlessly escalating tax increases, the corporate tax cut is so huge that it blows a hole in the long-term budget deficit in a way that violates Senate rules. So the House bill not only has a profoundly unpopular trade-off at its heart — it literally cannot pass the Senate without substantial changes. Which means if they’re smart, House Republicans will stop and make some serious changes of their own rather than just plowing ahead.
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And that gives a better idea of just how politically awful the Senate version of the tax bill is: the deficit explodes even with the House version’s tax hike in the middle-class, violating the Byrd rule. The Senate addresses fiscal hole this by extracting even more money from the poor and middle-class.
The Sequester Cuts. Including Medicare Cuts
And there’s the Medicare cuts. Yep, even though Medicare cuts aren’t mentioned anyone in the House or Senate versions of the tax bill, Medicare will still face a $25 billion cut. Why? Because of special “sequester” rules the Tea Party conservatives mandated during the 2010 budget showdown that forces across-the-board cuts to federal programs whenever Congress passes a bill that increases the deficit. And while Medicaid, Social Security, and food stamps are protected from the sequester, Medicare isn’t. So of the ~$136 billion in sequester cuts that the House tax bill will force on federal government programs in 2018 alone, $25 billion of that will come from cuts in Medicare [19]:
Talking Points Memo
House GOP’s Tax Bill Would Trigger A $25 Billion Cut To Medicare
By Alice Ollstein
Published November 17, 2017 6:00 amTwo weeks after its introduction and following zero hearings, the House of Representatives passed an approximately $1.5 trillion dollar tax cut on Thursday. Most of the focus has been on the bill’s tax benefits for the wealthy and corporations, but some lawmakers are sounding the alarm that passage of the bill will also trigger an estimated $25 billion cut [20] to Medicare.
With the Senate expected to take up its own bill after the Thanksgiving recess, Democrats struggling to mount an opposition to the bill see an opening in its controversial health care impacts—including the Medicare cuts, the repeal of Obamacare’s individual mandate [21], and the elimination of the medical expenses deduction in the House bill.
The Medicare cut—announced [20] by the non-partisan Congressional Budget Office on Tuesday—can only be waived [22] by a majority of the House and a 60-vote supermajority of the Senate.
Thanks to laws created by the Tea Party’s infamous 2010 sequester showdown over government spending, automatic cuts spring into action anytime Congress passes a bill that balloons the federal deficit, as the tax bill would. The approximately $136 billion in cuts spurred by the GOP tax bill would hit a number of government programs—including farm subsidies and the Border Patrol [23]—but would cut most deeply into Medicare. Medicaid, Social Security, and food stamps are protected.
These cuts would violate President Trump’s repeated campaign promises [24] not to touch Medicare and other social safety net programs. But for House Speaker Paul Ryan (R‑WI) and other lawmakers who have for decades longed for an opportunity to cut to Medicare and other federal benefits, the cuts would be a feature rather than a bug.
The CBO’s announcement this week has also raised the hackles of the influential AARP, who wrote to Congress on behalf of their 38 million members in opposition to the bill.
“The large increase in the deficit will inevitably lead to calls for greater spending cuts, which are likely to include dramatic cuts to Medicare, Medicaid and other critical programs serving older Americans,” they warned. “The Congressional Budget Office has now published a letter stating that unless Congress takes action, H.R. 1 will result in automatic federal funding cuts of $136 billion in fiscal year 2018, $25 billion of which must come from Medicare.”
Congress could avoid these cuts by waiving the so-called “pay-as-you-go” rules, but it’s unclear whether Republicans or Democrats would see that as being in their political interest. Senators from both parties would have to support the waiver to see it pass the upper chamber. Republicans who regularly rail against runaway government spending may not want to vote against the cuts, and Democrats have suggested [23] they have little interest in bailing out Republicans’ deficit-busting tax bill.
Yet some, including Sen. Chris Van Hollen (D‑MD), are already sounding the alarm. In a letter [25] to the House Freedom Caucus on Thursday, he demanded to know if they would vote to waive the budget rules if the tax bill became law.
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“Thanks to laws created by the Tea Party’s infamous 2010 sequester showdown over government spending, automatic cuts spring into action anytime Congress passes a bill that balloons the federal deficit, as the tax bill would. The approximately $136 billion in cuts spurred by the GOP tax bill would hit a number of government programs—including farm subsidies and the Border Patrol [23]—but would cut most deeply into Medicare. Medicaid, Social Security, and food stamps are protected.”
In case it wasn’t completely obvious that this tax cut would lead directly to cuts in federal programs, the sequester is a good reminder of this because it’s literally a rule that mandates cuts to federal programs when Congress increases the deficit. Federal cuts aren’t an option unless the sequester is ended.
And let’s not forget that, while President Trump pledged to leave Medicare untouched during his campaign, gutting Medicare is a long-term dream for the GOP at large:
...
These cuts would violate President Trump’s repeated campaign promises [24] not to touch Medicare and other social safety net programs. But for House Speaker Paul Ryan (R‑WI) and other lawmakers who have for decades longed for an opportunity to cut to Medicare and other federal benefits, the cuts would be a feature rather than a bug
...
So it’s looking very possible that Paul Ryan’s dream of cutting Medicare is about to happen. Soon. Because that $25 billion cut will be mandated to happen in 2018:
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The CBO’s announcement this week has also raised the hackles of the influential AARP, who wrote to Congress on behalf of their 38 million members in opposition to the bill.“The large increase in the deficit will inevitably lead to calls for greater spending cuts, which are likely to include dramatic cuts to Medicare, Medicaid and other critical programs serving older Americans,” they warned. “The Congressional Budget Office has now published a letter stating that unless Congress takes action, H.R. 1 will result in automatic federal funding cuts of $136 billion in fiscal year 2018, $25 billion of which must come from Medicare.”
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Also note that the cuts to Medicare are capped at 4 percent per year, which comes out to $25 billion. So if the sequester mandates that Medicare should be cut even more than $25 billion, those additional cuts are going to have to come from elsewhere in the federal budget [26]. In other words, these tax cuts for corporations and the rich aren’t just being paid for with higher taxes on the poor and middle-class. All beneficiaries of federal spending are also going to experience a cut.
And the only way to avoid these cuts will be for the GOP to repeal the sequester, which would be pretty remarkable if it happened when you consider that the sequester was demanded by the GOP over fears of rising national debt.
Is it a Tax Hike on the Poor, or a Premium Hike for the Poor’s Health Insurance? How About Both
Of course, since the the $25 billion annual cut to Medicare and the rest of the sequestration cuts triggered by the House’s version of the tax cut are triggered due to the explosion in the federal deficit, the sequester cuts might not be quite as large for the Senate version simply because the Senate version has to follow the Byrd rule and isn’t allowed to blow up the deficit quite as much. But as we already saw, it’s not like health care will go untouched under the Senate’s version thanks to the repeal of the Obamacare mandate.
And as we’ll see below, that Obamacare mandate repeal result in a pretty remarkable estimate for the impact of the Senate’s tax bill on the poorest Americans: the Joint Committee on Taxation (JTC) — the congressional committee consisting of House and Senate members tasked with estimating the costs of proposed legislation — estimated the tax bill for the poorest Americans would rise over 25 percent by 2027! And this spike in taxes for the poor was largely due to the repeal of the Obamacare mandate.
Now, as we’ll also see, that 25 percent rise in the tax burden for the poor is based on the fact that the government won’t be paying health insurance subsidies to 13 million Americans who assumed to drop their health insurance coverage if the mandate is repealed. So it’s the loss of health insurance subsidies that’s driving the 25 percent spike in the tax burden for the poor, a fact that the GOP is angrily latching onto to in this debate to make it look like this tax bill isn’t predicated on the poor paying the bill for the wealthy’s tax cuts. And yet it’s hard to ignore the reality that the Senate’s tax bill is paying for itself by assuming that the federal government spends a lot less money on health care for the poor, which sure looks a lot like the poor paying for tax cuts for the rich [27]:
The Hill
Tax cuts in Senate bill would evaporate in a decade: JCT
By Niv Elis and Peter Sullivan — 11/16/17 10:40 AM EST
Tax cuts for individuals in the Senate’s latest tax plan would disappear by 2027, according to an analysis by the Joint Committee on Taxation (JCT), with some even seeing a tax increase.
While taxpayers would see their tax bills drop by 7.4 percent on average in 2019 under the bill, by 2027, their taxes would rise by an average of 0.2 percent.
The poor would be hardest hit, with those making between $20,000 and $30,000 seeing their tax bills rise starting in 2021. By 2027, they would see a 25.4 percent increase in their tax bill.
Those making over $75,000 would still see their taxes go down, albeit by less than 1 percent by the final year, while everyone making under $75,000 would see some level of tax increase.
The drop-off is likely attributable to a series of expiring tax cuts introduced in Finance Committee Chairman Orrin Hatch’s (R‑Utah) latest update to the bill. The legislation would also eliminate the individual mandate for ObamaCare and lower some individual tax rates.
The JCT analysis looked at averages for each income group and did not break out how many people at each level would see their taxes go up or down.
Hatch said that the sharp tax increase on low-income families found by the analysis was the result of the individual mandate being repealed. Without the mandate, millions of people are expected to go without health insurance.
“JCT began with an assumption that some people in the lower income brackets will opt to not purchase health insurance and thus not take advantage of available tax credit subsidies. Without those credits, they see an overall uptick in their tax liability,” Hatch said at the opening of Thursday’s finance committee markup of the tax bill.
Low-income people would retain the option of accessing those subsidies if they chose to buy health insurance, he added. The JCT simply reflected the assumption that many would choose not to.
“Obviously, we have no intention of raising taxes on these families,” he added.
Republican senators at Thursday’s markup generally agreed that the numbers reflected fewer people receiving ObamaCare subsidies, which take the form of tax credits, when the individual mandate is removed.
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“The poor would be hardest hit, with those making between $20,000 and $30,000 seeing their tax bills rise starting in 2021. By 2027, they would see a 25.4 percent increase in their tax bill.”
A 25 percent increase in taxes for the poor in the GOP’s big tax cut bill. It’s not a great look.
But as the GOP tries to explain, this 25 percent increase is more or less voluntary because the poor can still access subsidized health insurance (thanks to the GOP’s repeated failures to repeal Obamacare this year):
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Hatch said that the sharp tax increase on low-income families found by the analysis was the result of the individual mandate being repealed. Without the mandate, millions of people are expected to go without health insurance.“JCT began with an assumption that some people in the lower income brackets will opt to not purchase health insurance and thus not take advantage of available tax credit subsidies. Without those credits, they see an overall uptick in their tax liability,” Hatch said at the opening of Thursday’s finance committee markup of the tax bill.
Low-income people would retain the option of accessing those subsidies if they chose to buy health insurance, he added. The JCT simply reflected the assumption that many would choose not to.
“Obviously, we have no intention of raising taxes on these families,” he added.
...
And while it’s true that the people who decide to forgo health insurance once the mandate is repealed would be doing this voluntarily, that ignores one of the more significant indirect effects of the mandate repeal: the 13 million people expected to go without health insurance if the mandate is repealed are also expected to be relatively young and healthy people. And when you encourage 13 million young and healthy people to drop out of the individual insurance markets, you’re inevitably going to see a spike in premiums.
And that’s the Congressional Budget Office (CBO) projected if that Obamacare mandate is repealed: a 10 percent hike in premiums for the individual health insurance market most years [28]:
Bloomberg Politics
The Senate Tax Bill’s Chances Just Got Better
By Steven T. Dennis and Sahil Kapur
November 22, 2017, 7:47 AM CST Updated on November 22, 2017, 10:03 AM CST* Murkowski agrees to kill Obamacare’s individual mandate
* Hurdles remain, including concerns about deficit effectsAlaska Senator Lisa Murkowski’s decision to agree to smash Obamacare’s individual mandate may remove one obstacle to passing the Senate Republican tax bill next week.
“I believe that the federal government should not force anyone to buy something they do not wish to buy in order to avoid being taxed,” she wrote in an op-ed in Alaska’s Daily News-Miner newspaper [29] posted online Tuesday.
Murkowski didn’t mention the tax bill in the article. But she previously said she preferred not to mix it with health care, and she was one of three mavericks who killed the GOP’s Obamacare repeal efforts earlier this year.
Her announcement came after she said last week that Congress should act to stabilize health-insurance markets in conjunction with eliminating the individual mandate — a requirement that individuals get health insurance or pay a federal penalty — in the tax legislation. In the op-ed, Murkowski reiterated her support for proposed legislation to do just that but didn’t indicate it was a precondition [30] for her to support the tax bill.
The mandate repeal now appears much more likely to stay in the tax bill, where it helps offset more than $300 billion in other tax cuts — revenue needed to bring the bill into compliance with Senate budget rules. It’s also crucial to President Donald Trump’s goal of making corporate tax cuts permanent under those rules.
There are still other hurdles for the tax bill to get to 50 votes. Republican Senators John McCain of Arizona and Susan Collins of Maine — who joined Murkowski in torpedoing efforts to repeal the Affordable Care Act earlier this year — have yet to sign on. And Wisconsin Senator Ron Johnson also threatened to vote against the bill without more tax relief for partnerships, limited liability companies and other so-called pass-through businesses. Senate leaders have said they’re trying to address Johnson’s concerns.
Deficit Questions
Three Republican senators, Bob Corker of Tennessee, Jeff Flake of Arizona and James Lankford of Oklahoma, have raised specific concerns about the bill’s effect on the deficit. On Wednesday, a new independent analysis of the bill found that it would continue to reduce federal revenue each year after 2027 — a potential complication for Senate tax writers.
Murkowski’s vote has long been wooed by the Senate Majority Leader Mitch McConnell. The bill notably includes a provision opening up Alaska’s Arctic National Wildlife Refuge to oil drilling — a priority for Alaska lawmakers for decades.
In recent weeks, Murkowski has been openly conflicted on how to vote on the mandate, saying she was concerned that higher premiums from repealing it could cancel out the tax cuts for some in the middle class. But in her op-ed, she drops those concerns, saying repealing the mandate would simply restore people’s freedom to choose and noting the sky-high insurance costs under the ACA in her state.
“A silver plan for a family of four, with a $9,000 deductible, will cost about $2,160 per month in 2018,” she wrote. For families who make too much for subsidies, that amounts to nearly $35,000 out of pocket before insurance kicks in, she added.
Insurance-Market Effect
She said in the op-ed that she still wants Congress to pass bipartisan legislation that aims to fix Obamacare “as fast as possible to stabilize our markets.”
Legislative staff members for Senator Patty Murray, a Washington Democrat who joined Tennessee Republican Lamar Alexander to sponsor a stabilization bill, said in a memo Tuesday that the legislation wouldn’t be enough to protect the system if the individual mandate is repealed.
“Republicans are seriously mistaken if they think passing Alexander-Murray will lessen the blow of repealing the coverage requirement included in the Affordable Care Act,” the memo said.
The Congressional Budget Office has estimated that the $300 billion in savings from repealing the mandate would come from about 13 million Americans dropping their coverage by 2027 — eliminating the need for federal subsidies that help them afford it. Because many of them would be younger, healthier people, insurance premiums would rise 10 percent in most years, the nonpartisan fiscal scorekeeper found.
On Tuesday, a national actuaries’ group said in a letter [31] to Senate leaders that repealing the individual mandate would raise costs for consumers and harm insurance markets.
Fiscal Study
Apart from health-care concerns, senators will have to grapple with the bill’s long-term effects on federal deficits. A new study released Wednesday may spell potential trouble on that score.
A report from the Penn Wharton Budget Model at the University of Pennsylvania found that the bill would reduce federal revenue in each year between 2027 and 2033. That finding would mean the bill doesn’t comply with a key budget rule that Senate Republican leaders want to use to pass the legislation with a simple majority over Democrats’ objections.
The rule holds that any bills approved via the fast-track process that GOP leaders intend cannot add to the deficit outside a 10-year budget window.
The official scorekeeper, Congress’s Joint Committee on Taxation, has already found that the bill would generate a surplus in its 10th year due to expiring tax breaks for businesses and individuals. But JCT hasn’t publicly weighed in on the revenue effects in subsequent years.
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“The Congressional Budget Office has estimated that the $300 billion in savings from repealing the mandate would come from about 13 million Americans dropping their coverage by 2027 — eliminating the need for federal subsidies that help them afford it. Because many of them would be younger, healthier people, insurance premiums would rise 10 percent in most years, the nonpartisan fiscal scorekeeper found.”
So the Senate’s tax plan doesn’t just involve raising $300 billion — to be spent on tax cuts for corporations and the wealthy — by dropping 13 million mostly young and healthy Americans off of federally subsidized health insurance. It’s also a plan to destabilize the individual health insurance markets because that’s what happens when you do something that’s expected to suck the young and healthy out of the insurance markets:
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In recent weeks, Murkowski has been openly conflicted on how to vote on the mandate, saying she was concerned that higher premiums from repealing it could cancel out the tax cuts for some in the middle class. But in her op-ed, she drops those concerns, saying repealing the mandate would simply restore people’s freedom to choose and noting the sky-high insurance costs under the ACA in her state.
...
It’s a remind that the subsidies for the young and healthy to buy insurance weren’t simply subsidies for those individuals who choose to buy subsidized insurance. They were subsidies for everyone in the individual insurance markets because having the young and healthy in those markets help bring down rates for everyone.
It’s that dynamic of lower coverage leading to higher premiums that’s led Lisa Murkowski, Alaska’s moderate GOP senator, to openly fret about the impact of repealing the mandate. And yet it sounds like she’s suddenly decided that repealing the Obamacare mandate is a great idea. Because it will enhance freedom (apparently the light fine for not getting health insurance harmed Americans’ freedom). And given that Murkowski is one of a handful of GOP Senator’s to express concerns about the Senate version of the tax bill, so hear her suddenly come around to repealing the mandate is a very ominous sign:
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Alaska Senator Lisa Murkowski’s decision to agree to smash Obamacare’s individual mandate may remove one obstacle to passing the Senate Republican tax bill next week.“I believe that the federal government should not force anyone to buy something they do not wish to buy in order to avoid being taxed,” she wrote in an op-ed in Alaska’s Daily News-Miner newspaper [29] posted online Tuesday.
Murkowski didn’t mention the tax bill in the article. But she previously said she preferred not to mix it with health care, and she was one of three mavericks who killed the GOP’s Obamacare repeal efforts earlier this year.
...
Murkowski’s vote has long been wooed by the Senate Majority Leader Mitch McConnell. The bill notably includes a provision opening up Alaska’s Arctic National Wildlife Refuge to oil drilling — a priority for Alaska lawmakers for decades.
In recent weeks, Murkowski has been openly conflicted on how to vote on the mandate, saying she was concerned that higher premiums from repealing it could cancel out the tax cuts for some in the middle class. But in her op-ed, she drops those concerns, saying repealing the mandate would simply restore people’s freedom to choose and noting the sky-high insurance costs under the ACA in her state.
...
“In recent weeks, Murkowski has been openly conflicted on how to vote on the mandate, saying she was concerned that higher premiums from repealing it could cancel out the tax cuts for some in the middle class. But in her op-ed, she drops those concerns, saying repealing the mandate would simply restore people’s freedom to choose and noting the sky-high insurance costs under the ACA in her state.”
And there we have it: Senator Murkowski notes the high insurance costs for Obamacare in her state in her statement supporting the repeal of the mandate, a move that she has previously been concerned with lead to higher insurance costs.
So now the chances of the tax cut bill actually passing in the Senate are A LOT higher than they would have been without Murkowski’s support. But there was one rather significant recent set back for the bill: According to a study by the Wharton school at the University of Pennsylvania, despite all the tax hikes on the middle-class and poor, the Senate tax bill still violates the Byrd rule:
...
Apart from health-care concerns, senators will have to grapple with the bill’s long-term effects on federal deficits. A new study released Wednesday may spell potential trouble on that score.A report from the Penn Wharton Budget Model at the University of Pennsylvania found that the bill would reduce federal revenue in each year between 2027 and 2033. That finding would mean the bill doesn’t comply with a key budget rule that Senate Republican leaders want to use to pass the legislation with a simple majority over Democrats’ objections.
The rule holds that any bills approved via the fast-track process that GOP leaders intend cannot add to the deficit outside a 10-year budget window.
...
But that’s still just an independent report. It’s going to be up to the congresses’ official scorekeeper, the Joint Committee on Taxation (JTC), to make the determination as to whether or not the Senate bill really does pass the Byrd rule. And the JTC has yet to weigh in on that:
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The official scorekeeper, Congress’s Joint Committee on Taxation, has already found that the bill would generate a surplus in its 10th year due to expiring tax breaks for businesses and individuals. But JCT hasn’t publicly weighed in on the revenue effects in subsequent years.
...
So while we don’t yet know what the JCT will decide, we do know that outside analysts don’t see the Senate’s version of the bill fulfilling the Byrd rule.
GOP Scheme to Trickle Its Way Into Byrd Rule Compliance
And that skepticism over the Senate bill’s compliance with the Byrd rule isn’t limited to University of Pennsylvania analysis. The Tax Policy Center recently put out its own analysis on the Senate bill. And that analysis assumed the tax cuts would indeed boost the overall economic growth. In other words, the analysis assumed the tax cuts for the rich and corporations would pay for themselves by boosting economic growth, a central tenet to the GOP’s tax-cutting orthodoxy. But even with that enhanced growth, the analysis found that the still didn’t pass the Byrd rule [32]:
Talking Points Memo
DCStudy: Even With Dynamic Scoring, GOP Tax Bill Still Blows Up The Deficit
By Alice Ollstein Published November 20, 2017 2:52 pm
On Monday, the Tax Policy Center released a new analysis [33] of the House tax bill that disproves claims [34] from GOP leadership and the Trump administration that the deep tax cuts for corporations and the wealthy will create so much economic growth that the bill will pay for itself.
Treasury Secretary Steve Mnuchin recently insisted [35] that “not only will this tax plan pay for itself, but it will pay down debt.” White House economic adviser Gary Cohn agreed, saying [36] that “we can pay for the entire tax cut through growth over the cycle.”
Yet the new study by the Tax Policy Center finds that while the bill would somewhat boost the nation’s economic output, leading to more revenue for the government, it would not be enough to offset the revenue lost by the tax cuts. The net effect of the bill would be to increase the deficit by $1.27 trillion over 10 years.
The estimated growth would be lower than promised and the impact would diminish over time. The Tax Policy Center estimates that the tax cuts would increase the U.S. GDP by 0.6 percent in 2018, 0.3 percent in 2027, and 0.2 percent in 2037.
The revenue generated by the growth would be about $169 billion over 10 years—a drop in the bucket to the revenue the government would lose over that same period.
This study echoes the findings of other analyses—including one conducted by President Trump’s alma mater, the Wharton School of Business [37]—showing that even when taking growth into account through so-called dynamic scoring, the tax bill would still balloon the deficit.
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“Yet the new study by the Tax Policy Center finds that while the bill would somewhat boost the nation’s economic output, leading to more revenue for the government, it would not be enough to offset the revenue lost by the tax cuts. The net effect of the bill would be to increase the deficit by $1.27 trillion over 10 years”
Even with assumed increases in economic growth as a result of these tax cuts, the Tax Policy Center study found the net effect on the deficit would be an increase of $1.27 trillion over 10 years.
So if the Joint Committee on Taxation is going to conclude that the Senate bill does actually follow the Byrd rule, it’s going to have to assume that these tax cuts result in far greater enhanced economic growth than what the Tax Policy Center was assuming. Spectular growth. The kind of growth that the GOP has been promising from its various tax cuts for the rich for decades that never seem to material. That kind of growth.
Which is perhaps why it’s not surprising to see statements like this coming from the Trump administration:
...
Treasury Secretary Steve Mnuchin recently insisted [35] that “not only will this tax plan pay for itself, but it will pay down debt.” White House economic adviser Gary Cohn agreed, saying [36] that “we can pay for the entire tax cut through growth over the cycle.”
...
That’s right, Trump’s Treasury Secretary actually argued that the tax cuts will not only pay for itself but actually bring in more revenue than it costs. Super trick-down! And the White House economic advisor Gary Cohn agreed! All those projections that the Senate tax cut bill will result in over a trillion dollars in new deficits over the next decade are completely wrong because the tax cuts will completely pay for themselves through economic growth according to the Trump White House [36]:
CNBC
Trump advisor Gary Cohn says we can pay for the entire tax cut through economic growth
* Tax cuts Republicans proposed this week will be paid for through economic growth, chief White House economic advisor Gary Cohn tells CNBC.
* Cohn says the cuts will drive growth that will exceed 3 percent.Jeff Cox
Published 8:05 AM ET Thu, 28 Sept 2017 Updated 9:11 AM ET Thu, 28 Sept 2017Tax cuts Republicans proposed this week will be paid for entirely through economic growth, chief White House economic advisor Gary Cohn said Thursday.
Republicans issued the tax overhaul plan [38] Wednesday that simplifies the tax code, breaking rates down into three categories and cutting corporate rates. The plan also seeks to give companies a break for profits stashed overseas while doubling the standard deduction for most filers.
The tax cuts are projected to cost at least $1.5 trillion and up to $2.2 trillion, according to one analysis. Tax reform, along with reduced regulation and infrastructure spending, was the cornerstone of President Donald Trump’s 2016 election campaign.
Cohn said the cuts won’t increase the budget deficit.
“We think we can drive a lot of business back to America, we can drive jobs back to America, we can make ourselves very competitive,” Cohn told CNBC in a live interview. “We think we can pay for the entire tax cut through growth over the cycle.”
Cohn predicted that economic growth would be “substantially over 3 percent” due to tax reform and deregulation.
The GOP plan proposes lowering the corporate tax rate from the current 35 percent, the highest in the world, to 20 percent. The administration originally had wanted 15 percent, and Cohn said the White House will not budge on the 20 percent level [39].
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““We think we can drive a lot of business back to America, we can drive jobs back to America, we can make ourselves very competitive,” Cohn told CNBC in a live interview. “We think we can pay for the entire tax cut through growth over the cycle.”
This is seriously the White House’s line on this debate: there is no problem with the Senate’s compliance with the Byrd rule because the massive tax cut for the rich and corporations will completely pay for itself.
America’s CEO’s Didn’t Get the Trickle Down Memo
So given that the White House is making some sort of Super Tricke-Down argument to the public, it raises the question as to whether or not that’s the same argument the GOP is planning on making to the JCT. Is Super Trickle-Down going to be official justification for this tax bill? Well, if so, someone needs to inform America’s CEOs. Because if American companies expected to go on an investment and hiring binge after this tax cut goes into effect, America’s CEOs don’t appear to be aware of this plan [40]:
Business Insider
Gary Cohn had an awkward moment when CEOs appeared to shoot down one of the biggest arguments for the GOP tax plan
Bob Bryan
Nov. 14, 2017, 1:58 PM* The Trump administration has argued that the proposed GOP tax cuts will lead to a boom in private investment.
* During an event with the top White House economic adviser, Gary Cohn, CEOs were asked whether they would increase investment if the GOP’s tax overhaul passed.
* Few did, prompting Cohn to ask, “Why aren’t the other hands up?”A group of CEOs on Tuesday appeared to cast doubt on one of the White House’s biggest arguments for overhauling the tax code — right in front of the economic adviser Gary Cohn.
At a meeting of The Wall Street Journal’s CEO Council, an interview with Cohn — the National Economic Council director who previously worked as an executive at Goldman Sachs — prompted discussion about the amount of investment the GOP tax bill, the Tax Cuts and Jobs Act [41], would generate.
Republicans and the Trump administration have argued that tax cuts for businesses would lead companies to investment more [42] and raise wages for workers.
The moderator then asked those in attendance whether they were planning to increase their business investment if the tax bill became law. The CEOs in attendance did not seem to be on the same wavelength as Cohn.
While there was a smattering of raised hands in the auditorium, it was clearly not as many as Cohn would have liked.
“Why aren’t the other hands up?” Cohn asked before moving on to another question.
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“The moderator then asked those in attendance whether they were planning to increase their business investment if the tax bill became law. The CEOs in attendance did not seem to be on the same wavelength as Cohn.”
A smattering of raised hands. That was the response from an auditorium filled with CEOs at the Wall Street Journal’s CEO Council when asked who was planning on using this tax cut to hire more people:
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While there was a smattering of raised hands in the auditorium, it was clearly not as many as Cohn would have liked.“Why aren’t the other hands up?” Cohn asked before moving on to another question.
...
“Why aren’t the other hands up?” It’s a question America is probably going to ask itself for years to come if that tax plan becomes reality. While deficits explode and wealth inequality skyrockets.
The Byrd Rule is Really Just a Suggestion in the Long Run
But another question America is probably going to be asking itself is, “how on Earth did we believe the deficits would only spike by $1 to 2 trillion?” Because in addition to the Super Trickle-Down arguments that we’re hearing from the White House, the GOP is trotting out another set of arguments to answer critics who point out the temporary tax cuts are for the poor and middle-class while all the permanent tax cuts are for corporations and the wealthy: don’t worry, those temporary tax cuts for the poor and middle-class aren’t actually temporary, because Congress will almost surely extend them in the future. In other words, all this talk about making the Senate tax plan comply with the Byrd rule and remain deficit-neutral is purely for expediency, and the real plan is to actually blow up the deficit much, much more than even more than currently projected [43]:
The New York Times
The Conscience of a LiberalSchroedinger’s Tax Hike
Paul Krugman
November 24, 2017 12:26 pm November 24, 2017 12:26 pmYes, I know that’s supposed to be an umlaut in the title. I just can’t persuade WordPress to do it.
So: There are many amazing things about the Republican tax pitch, where by “amazing” I mean terrible. But possible the most amazing of all is the attempt to have it both ways on the question of middle-class taxes.
The Senate bill, as written, tries to be long-run deficit-neutral — allowing use of the Byrd rule to bypass a filibuster — by offsetting huge corporate tax cuts with higher taxes on individuals, so that by 2027 half the population, and most of the middle-class [44], would see taxes go up. But those tax hikes are initially offset by a variety of temporary tax breaks.
Now, Republicans are arguing that those tax breaks won’t actually be temporary, that future Congresses will extend them. But they also need to assume that those tax breaks really will expire in order to meet their budget numbers. So the temporary tax breaks need, for political purposes, to be both alive and dead.
If they succeed in this exercise in quantum budgeting, we’ll eventually open the box, collapsing the wave function, and discover whether the budget promise or the tax claim was a lie. But for now, they want to hold it all in suspension. Once upon a time you wouldn’t have imagined they could get away with it. Now …
———-
“Schroedinger’s Tax Hike” by Paul Krugman; The New York Times; 11/24/2017 [43]
“Now, Republicans are arguing that those tax breaks won’t actually be temporary, that future Congresses will extend them. But they also need to assume that those tax breaks really will expire in order to meet their budget numbers. So the temporary tax breaks need, for political purposes, to be both alive and dead.”
Don’t worry about the deficit because enough of tax cuts are temporary. And don’t worry about the unfairness of the temporary tax cuts because they aren’t actually going to be temporary. This is the messaging coming from the GOP right now, which is why even some conservatives are getting anxious. You might be tempted to assume that lots of GOPers would be getting nervous about this since focusing on the deficit is a cudgel the GOP has been using for years to keep government spending down. But it turns out there aren’t actually very many Republicans in Congress who care about higher deficits if those deficits are a consequence of a tax cut. But for that handful of genuine GOP deficit hawks, all this talk about extending the temporary tax cuts is making them nervous [45]:
Politico
GOP deficit hawks fear tax plan is secret budget-buster
Key Senate Republicans worry tax cuts slated to expire will eventually be extended — boosting the true cost of the bill.
By SEUNG MIN KIM
11/24/2017 07:42 AM EST
The GOP has yet to resolve an internal clash over whether expiring tax cuts will really expire, potentially threatening the party’s push for a desperately-needed legislative achievement.
On one side are the White House and top congressional Republicans, who argue that ultimately all the tax cuts in their plan will be extended, even the ones slated to lapse. But that’s exactly what the party’s small, but mighty, bloc of deficit hawks is afraid of.
And as the Senate steams toward a vote next week on its massive tax overhaul, the fight over the bill’s true sticker price may be the deciding factor for the bill.
It was bad enough, in the deficit hawks’ view, that key provisions in the House bill expire in five years and that lawmakers already assume they’ll get extended. But their concerns multiplied after the revised Senate GOP tax plan proposed winding down a host of popular tax cuts for individuals after 2025. The tax cuts were made temporary to trim the official cost of the bill, but deficit hawks fear Congress will simply extend them — further adding to the government’s red ink.
“The savings, the score, it just isn’t valid because you know that they’re not going to follow through,” Sen. Jeff Flake (R‑Ariz.), an avowed fiscal conservative, said in a recent interview. “You can’t assume that we’ll grow a backbone later. If we can’t do it now, then it’s tough to do it later.”
The collision between what most Republicans see as simple political reality — keeping popular tax cuts for voters — and deep deficit worries from influential GOP senators could derail the tax reform efforts, particularly if and when the chambers try to meld their tax proposals in the coming weeks.
The deficit hawks decry what they see as gimmicks in the plan, particularly writing in an expiration date for tax breaks with no intention of letting them die. While the official price tag for the Senate tax plan may be $1.4 trillion, extending all the expiring provisions would bump up that cost by another half a trillion dollars, according to the fiscal watchdog group Committee for a Responsible Federal Budget.
Republicans leading the tax charge have said that the tax cuts expire merely to fit within the parameters set up by complicated Senate rules. And they brush off attacks from Democrats who note that the cuts are permanent for corporations but temporary for regular people. Republicans say Democrats should help them make those cuts permanent, which would require 60 votes on the floor — something Democrats are unlikely to do.
Speaker Paul Ryan (R‑Wis.) has publicly blamed the Senate rules as the reason some provisions in the House bill, like a family tax credit, expire after five years. He recently told reporters he thinks future Congresses will extend them.
That’s the White House line, too.
“Of course, the hope for everybody is that when the time comes for these things to expire, that they get extended,” Kevin Hassett, chairman of the White House Council of Economic Advisers, said last week.
Flake and Tennessee Sen. Bob Corker, another independent-minded Republican not running for reelection next year, have been among the most outspoken with their deficit concerns. So too, has Sen. John McCain of Arizona, a major wildcard for GOP leadership in the tax fight.
But other Republicans have gradually become more vocal about their own deficit worries, with Sens. Todd Young of Indiana and James Lankford of Oklahoma among them. GOP leaders can only lose two votes before the tax bill tanks.
...
Other GOP senators have raised different objections to the tax bill; Sen. Ron Johnson of Wisconsin doesn’t like the way the plan treats small businesses and Sen. Susan Collins of Maine takes issue with repealing Obamacare’s individual mandate in the plan, among other concerns.
Democrats have seized on the bill’s contradictions, and Senate Minority Leader Chuck Schumer of New York has been particularly eager to exploit the Republican divide.
“I say to my colleagues, particularly the deficit hawks, you can’t have it both ways,” Schumer said in a recent floor speech. “You cannot say we’re going to protect the middle class after 2025 and we’re going to reduce the deficit. This bill is a deficit budget buster. We all know what will happen.”
Indeed, Congress has a good track record of keeping expiring tax cuts around.
Lawmakers faced a “fiscal cliff” at the end of 2012 composed mainly of the expiring Bush tax cuts. Congress, backed by the Obama administration, ultimately voted to make the vast majority of tax cuts permanent. Capitol Hill also routinely voted to maintain temporary tax “extenders” year after year, before passing legislation in December 2015 that made most of them permanent.
The Senate tax measure includes dozens of provisions that are set to expire yet would likely be politically untenable to actually kill; chief among them are their plans to boost the child tax credit, cut individual tax rates and increase the standard deduction.
Corker has been one of the loudest critics of ballooning the deficit. But he’s been careful not to openly disparage the tax plans moving through Congress, and Senate tax-writers, as well as leadership, are aware of his concerns. The Tennessee Republican said he has been discussing ways to resolve deficit worries with other senators — Flake among them — but declined to elaborate further.
Whether Senate Republicans can ultimately win over the GOP skeptics is unclear.
When asked about the cost of extending expiring provisions, McCain stressed: “I’m always worried about the deficit.”
———-
“GOP deficit hawks fear tax plan is secret budget-buste” by SEUNG MIN KIM; Politico; 11/24/2017 [45]
“The deficit hawks decry what they see as gimmicks in the plan, particularly writing in an expiration date for tax breaks with no intention of letting them die. While the official price tag for the Senate tax plan may be $1.4 trillion, extending all the expiring provisions would bump up that cost by another half a trillion dollars, according to the fiscal watchdog group Committee for a Responsible Federal Budget.”
Extending the tax expiring tax cuts for the poor and middle-class is expected to raise the cost of the Senate’s plan from $1.4 trillion to close to $2 trillion, spiking the cost by over a third. And that $1.4 trillion is just the costs for the first 10 years. The long term costs of extending the expiring tax cuts for the middle-class will of course be substantially higher if these tax cuts get the same treatment the corporate tax cuts are given and are extended permanently.
So will the GOP’s ‘deficit hawks’ balk at the prospect of massively exploding the deficit for decades to come, something that would guarantee the forced cuts in entitlement programs? We’ll see, but it’s worth noting that the three deficit hawks interviewed for the above article are three GOPers set to retire from the Senate: Bob Corker, Jeff Flake, and John McCain:
...
Corker has been one of the loudest critics of ballooning the deficit. But he’s been careful not to openly disparage the tax plans moving through Congress, and Senate tax-writers, as well as leadership, are aware of his concerns. The Tennessee Republican said he has been discussing ways to resolve deficit worries with other senators — Flake among them — but declined to elaborate further.Whether Senate Republicans can ultimately win over the GOP skeptics is unclear.
When asked about the cost of extending expiring provisions, McCain stressed: “I’m always worried about the deficit.”
So will retiring from the Senate make these three GOPers more likely to vote down the GOP’s prized tax cut out of sense of fiscal responsibility, or will retiring just make it easier for these Senators to vote for a bill that will likely cause havoc on the budget after they’ve retired? We’ll see.
GOP Mega-Donors, the Ultimate Constituency
But one aspect of being a retiring Senator should make life much easier for people like Bob Corker, Jeff Flake, and John McCain: they don’t have to answer to the GOP mega-donors [46]:
Talking Points Memo
LivewireGOPer On Tax Cuts: Donors Are Saying ‘Get It Done Or Don’t Ever Call Me Again’
By Matt Shuham
Published November 7, 2017 1:53 pmRep. Chris Collins (R‑NY) got points for honesty Tuesday while advocating for Republicans’ tax bill to slash the corporate tax rate and eliminate the estate tax, among other things.
“My donors are basically saying, ‘Get it done or don’t ever call me again,’” Collins said.
According to the Hill [47], Collins made the comment while speaking to reporters after a House GOP conference meeting.
...
Collins, a millionaire and one of the wealthiest members of Congress, repeated [48] the GOP claim in a radio interview Tuesday that a middle-income American family would get a roughly $1,200 tax break as a result of the party’s tax proposal.
Vox’s Matthew Iglesias reported Monday [15] that claim is only true for the first year following the plan’s passage. The advertised tax break would decrease to next-to-nothing within six years, and the exemplar family would pay more under Republicans’ tax bill from year seven onward.
———-
““My donors are basically saying, ‘Get it done or don’t ever call me again,’” Collins said.”
Sure, that’s just an anecdote from a single congressman. But it’s hard to imagine that this isn’t the same message all GOPers are getting from their mega-donors across the country. After all, it’s not like a tax cut that’s almost entirely for the rich and corporation is going to be politically popular. Yet the GOP is clearly desperate to make this political poison pill a reality.
And yes, Trump and the GOP still clearly need at least one big legislative ‘win’. But it’s hard to see how a tax cut that starts eroding away for the poor and middle-class in a year is going to be politically helpful. Mega-donors wouldn’t need to issue ‘pass this, or else’ threats if it was a political winner. If Congress simply passed a resolution to be better people next year that would be a far, far bigger legislative accomplishment for the GOP than a super-villain-ish tax monstrosity.
Misinformed Future Voters Who Won’t Realize the Damage the GOP Has Already Done is Also an Important GOP Constituency
So given how politically poisonous this horrible tax plan is, it raises the question of what the GOP’s long-term plans are, especially given the already declared plans to extend all the tax cuts and blow up the deficit even more. After all, if this bill passes and ends up being as politically poisonous it appears to be, it’s entirely possible that the GOP will lose control of the House in 2018 and the Senate and White House in 2020.
Does the GOP and its mega-donor class actually believe in their Super Tricke-Down rhetoric? Do they actually think there’s going to be an economic mega-boom that makes results in the tax cut paying for itself? That seems highly unlikely. So what’s the plan?
Well, as the following article from Bruce Bartlett — a domestic policy advisor for Ronald Reagan who helped popularize the Trickle-Down myth but who is now a harsh critic of GOP economic policy [49] — makes clear, the GOP plan is likely as follows: pass a massive tax cut now, lose control of power and the Democrats temporarily take control while deficits explode from the tax cuts, then campaign against the Democrats as out-of-control spenders who need to be thrown out of office for their fiscal irresponsibility, and finally regain political power and demand massive spending cuts. In other words, ‘the plan’ the same plan the GOP has been successfully exploiting for decades [50]:
The Guardian
Republican tax cuts will hurt Americans. And Democrats will pay the price
The consequences of the tax program will shelve support for the Republicans, but once in power the Democrats’ hands will be financially bound for years
Bruce Bartlett
Monday 20 November 2017 09.10 EST
Last modified on Monday 20 November 2017 10.35 ESTI think many Democrats and independent political observers are puzzled by the intensity with which Republicans are pursuing their tax cut [51]. It’s not politically popular and may well lead to the party’s defeat in next year’s congressional elections. So why do it?
The answer is that Republicans are pushing the tax cut at breakneck speed precisely because they know they are probably going to lose next year and in 2020 as well. The tax cut, once enacted, however, will bind the hands of Democrats for years to come, forcing them to essentially follow a Republican agenda of deficit reduction and prevent any action on a positive Democratic program. The result will be a steady erosion of support for Democrats that will put Republicans back in power within a few election cycles.
The theory was laid out almost 30 years ago by two Swedish economists, Torsten Persson and Lars EO Svensson. In a densely written article [52] for the Quarterly Journal of Economics in 1989, they explained why a stubborn conservative legislator would intentionally run a big budget deficit.
It has to do with what economists call time inconsistency – the consequences of actions taken today may not appear until the future, when a different political party will be in power. Thus the credit or blame will accrue to that party rather than the one that implemented the policy, because voters tend to attribute whatever is happening today to the party in power today even if that party had nothing to do with it.
Thus Barack Obama got blamed for a recession and resulting budget deficits he had nothing to do with originating. No matter how many times the Congressional Budget Office showed that the vast bulk of the budget deficits in his administration were baked in the cake the day he took office, Republicans nevertheless blamed him and his policies exclusively for those deficits.
Of course, another reason for those deficits is that Republicans systematically decimated the federal government’s revenue-raising capacity during the George W Bush administration with one huge tax cut after another. All of these were sold as necessary to get the economy growing again. The failure of the economy to respond positively was never taken as evidence of the failure of those tax cuts, but rather as showing the need for even more and bigger tax cuts.
The payoff for this orgy of tax-cutting came when Obama took office. All of a sudden, Republicans noticed that there were large deficits and insisted that Obama do something about them right this minute! They even made the nonsensical argument that spending cuts would stimulate growth by reducing the burden of government.
Democrats did a poor job of explaining how Franklin Roosevelt tried exactly that in 1937, slashing government spending because his treasury secretary told him it would restore business confidence. The result was a sharp downturn that raised unemployment, which had been trending down.
Obama’s hands were tied by the deficit hawks in his own party as well and prevented from offering an economic stimulus adequate to offset the loss of aggregate demand resulting from the great recession that began in December 2007 on Bush’s watch. Obama even joined with Republicans to slash spending in the 2011 budget deal and put in place budget controls that made it virtually impossible to pursue any positive Democratic initiatives for the balance of his presidency. No wonder Trump won.
I think Republicans remember better than Democrats the lesson of 1993 as well. Bill Clinton was elected in 1992 on an activist agenda. But once in office, he was persuaded to reverse course and put all his efforts into deficit reduction. This transformation was spelled out in detail in Bob Woodward’s 1994 book, The Agenda [53]. Its key element was a significant tax increase that every Republican in Congress voted against. They said it would crash the economy, but was instead followed by an economic boom. Unfortunately, the boom didn’t become apparent until after the 1994 election in which Democrats took heavy losses – in large part because of the tax increase. Republicans got control of both houses of Congress for the first time in 40 years.
Clinton remained beholden to the deficit hawks for his entire presidency, doing nothing with the vast budget surpluses that emerged and hoarding them like a modern day Midas, despite pressing economic needs and growing financial problems withsocial security and Medicare that those surpluses could have fixed. Clinton simply bequeathed them to Bush, who promptly dissipated them with tax cuts and a huge new spending program, Medicare Part D, not to mention wars in the Middle East that continue to this day.
I believe that the same cycle will rerun over the next few years. Should Democrats get control of the House and/or Senate next year, Trump and his party will insist that deficit reduction be the only order of business. Automatic spending cuts resulting directly from the tax cut will start to bite, hurting the poor and middle class primarily, according to the Congressional Budget Office, and making them forget that they resulted from a huge tax give-away to the wealthy that increased the deficit by $1.5tn. Democrats will get much of the blame due to time-inconsistency.
It’s possible that Trump’s appointees to the Federal Reserve may be so alarmed by the inflationary potential of the growing deficits that they will raise interest rates in response. This could trigger a recession that will be blamed on a Democratic president taking office in 2021, just as happened with Obama. But that president may not be able to enact any stimulus at all because deficits crowd out any fiscal space. By 2022, Republicans will be back in control of Congress and in the White House by 2024. In 2025, they will demand still more tax cuts.
Keep in mind that no matter how big the deficit gets from the tax cut Republicans are rushing to enact, none of them will ever vote to undo those cuts or raise taxes except, perhaps, in ways that further burden the poor, such as raising the gasoline tax. That is because they all signed a tax pledge promising never to raise taxes. Therefore, any deficit reduction will either consist solely of spending cuts or pass with only Democratic votes, as was the case in 1993.
The originator of the pledge, Grover Norquist, planned it this way. I doubt he has ever read Persson and Svensson, but understood intuitively that the tax pledge was guaranteed to ratchet down the size of government forever. It wouldn’t happen all at once, but over a period of decades. The history of fiscal policy since the pledge was originated in 1988 is, sadly, proof that it has worked exactly as he hoped.
...
———-
“I think many Democrats and independent political observers are puzzled by the intensity with which Republicans are pursuing their tax cut [51]. It’s not politically popular and may well lead to the party’s defeat in next year’s congressional elections. So why do it?”
That’s the big question: why do it? Why is the GOP pushing so hard to do something that appears to be political suicide? And Bruce Bartlett has a very compelling answer: The GOP is intentionally committing the political equivalent of a suicide-bombing. It’s a strategy rooted in the assumption that the public will have no memory any of this ever happened:
...
The answer is that Republicans are pushing the tax cut at breakneck speed precisely because they know they are probably going to lose next year and in 2020 as well. The tax cut, once enacted, however, will bind the hands of Democrats for years to come, forcing them to essentially follow a Republican agenda of deficit reduction and prevent any action on a positive Democratic program. The result will be a steady erosion of support for Democrats that will put Republicans back in power within a few election cycles.The theory was laid out almost 30 years ago by two Swedish economists, Torsten Persson and Lars EO Svensson. In a densely written article [52] for the Quarterly Journal of Economics in 1989, they explained why a stubborn conservative legislator would intentionally run a big budget deficit.
It has to do with what economists call time inconsistency – the consequences of actions taken today may not appear until the future, when a different political party will be in power. Thus the credit or blame will accrue to that party rather than the one that implemented the policy, because voters tend to attribute whatever is happening today to the party in power today even if that party had nothing to do with it.
...
“It has to do with what economists call time inconsistency – the consequences of actions taken today may not appear until the future, when a different political party will be in power. Thus the credit or blame will accrue to that party rather than the one that implemented the policy, because voters tend to attribute whatever is happening today to the party in power today even if that party had nothing to do with it.”
Blowing the party up in order to create fiscal conditions that force the party’s long-term goals and relying on the theory of “time inconsistency” to ensure that voters have no idea what happened. That’s the plan.
And it’s plan with precedents. Very recent precedents:
...
Thus Barack Obama got blamed for a recession and resulting budget deficits he had nothing to do with originating. No matter how many times the Congressional Budget Office showed that the vast bulk of the budget deficits in his administration were baked in the cake the day he took office, Republicans nevertheless blamed him and his policies exclusively for those deficits.Of course, another reason for those deficits is that Republicans systematically decimated the federal government’s revenue-raising capacity during the George W Bush administration with one huge tax cut after another. All of these were sold as necessary to get the economy growing again. The failure of the economy to respond positively was never taken as evidence of the failure of those tax cuts, but rather as showing the need for even more and bigger tax cuts.
The payoff for this orgy of tax-cutting came when Obama took office. All of a sudden, Republicans noticed that there were large deficits and insisted that Obama do something about them right this minute! They even made the nonsensical argument that spending cuts would stimulate growth by reducing the burden of government.
Democrats did a poor job of explaining how Franklin Roosevelt tried exactly that in 1937, slashing government spending because his treasury secretary told him it would restore business confidence. The result was a sharp downturn that raised unemployment, which had been trending down.
...
The Obama presidency was an example of the successful implementation of “time-inconsistency”. The George W. Bush administration pass all sorts of tax cuts for the rich that don’t magically result in a booming economy, deregulates the financial sector, and by the time Obama enters the White House the economy has tanked, deficits spiked, and the Democrats are unable to adequately respond in fiscal stimulus. It’s an important lesson, not just because it was recent, but also because you almost couldn’t come up with a more appropriate situation for deficit spending than government stimulus following something like the 2008 financial crisis. But that option was significantly comprised thanks to the Bush tax cuts.
And then, following the GOP re-taking control of the House in 2010, the GOP immediately declares the budget is out of control and eventually blackmailing the Democrats into accepting the sequester because the alternative would have been the GOP forcing a default on the national debt [54]. And that same sequester is still in place today. This is why the $25 billion in Medicare cuts might happen as result of the propose tax cuts: Republicans used the rising deficits in Obama’s early years following the 2008 financial crisis — years when the deficit should have risen due to the situation — to regain political power and then take the nation’s finances hostage to force the Democrats into accepting the sequester. And the public largely has no idea this happened. Time-inconsistency in action:
...
Obama’s hands were tied by the deficit hawks in his own party as well and prevented from offering an economic stimulus adequate to offset the loss of aggregate demand resulting from the great recession that began in December 2007 on Bush’s watch. Obama even joined with Republicans to slash spending in the 2011 budget deal and put in place budget controls that made it virtually impossible to pursue any positive Democratic initiatives for the balance of his presidency. No wonder Trump won.
...
And that’s just the precedent from the Obama years. Then there’s the case of the Clinton administration: Bill Clinton gets elected on an activist agenda in 1992 but then submits to a deficits reduction strategy that involves raising taxes. That tax hike helps sweep the GOP into congressional power in 1994, but it’s also great policy and precedes an economic boom that results in a surge in government revenues. Clinton sticks with the budget-reduction agenda and eventually hands a budget surplus to George W. Bush, who promptly proceeds to convert it into a budget-busting tax cut for the rich and Medicare Part D (which is basically a corporate giveaway that fosters high drug prices) [55]:
...
I think Republicans remember better than Democrats the lesson of 1993 as well. Bill Clinton was elected in 1992 on an activist agenda. But once in office, he was persuaded to reverse course and put all his efforts into deficit reduction. This transformation was spelled out in detail in Bob Woodward’s 1994 book, The Agenda [53]. Its key element was a significant tax increase that every Republican in Congress voted against. They said it would crash the economy, but was instead followed by an economic boom. Unfortunately, the boom didn’t become apparent until after the 1994 election in which Democrats took heavy losses – in large part because of the tax increase. Republicans got control of both houses of Congress for the first time in 40 years.Clinton remained beholden to the deficit hawks for his entire presidency, doing nothing with the vast budget surpluses that emerged and hoarding them like a modern day Midas, despite pressing economic needs and growing financial problems withsocial security and Medicare that those surpluses could have fixed. Clinton simply bequeathed them to Bush, who promptly dissipated them with tax cuts and a huge new spending program, Medicare Part D, not to mention wars in the Middle East that continue to this day.
...
Clinton raises taxes, gets politically punished for it, oversees an economic boom, and hands a budget surplus to George W. Bush who blows it all on tax cuts, wars, and a Big Pharma giveaway. Time-inconsistency strikes again.
And as Bruce Barlett warns us, this cycle is likely to play out again:
...
I believe that the same cycle will rerun over the next few years. Should Democrats get control of the House and/or Senate next year, Trump and his party will insist that deficit reduction be the only order of business. Automatic spending cuts resulting directly from the tax cut will start to bite, hurting the poor and middle class primarily, according to the Congressional Budget Office, and making them forget that they resulted from a huge tax give-away to the wealthy that increased the deficit by $1.5tn. Democrats will get much of the blame due to time-inconsistency.
...
“I believe that the same cycle will rerun over the next few years. Should Democrats get control of the House and/or Senate next year, Trump and his party will insist that deficit reduction be the only order of business. Automatic spending cuts resulting directly from the tax cut will start to bite, hurting the poor and middle class primarily, according to the Congressional Budget Office, and making them forget that they resulted from a huge tax give-away to the wealthy that increased the deficit by $1.5tn. Democrats will get much of the blame due to time-inconsistency”
And that cycle that Bruce Bartlett warns us about is the cycle Grover [56] Norquist [57] has been promoting for decades. In particular, promoting by getting GOPers to sign a ‘no tax’ pledge that means the GOP has pledged to not undo the damage it does even if its tax cut is super damaging:
...
Keep in mind that no matter how big the deficit gets from the tax cut Republicans are rushing to enact, none of them will ever vote to undo those cuts or raise taxes except, perhaps, in ways that further burden the poor, such as raising the gasoline tax. That is because they all signed a tax pledge promising never to raise taxes. Therefore, any deficit reduction will either consist solely of spending cuts or pass with only Democratic votes, as was the case in 1993.The originator of the pledge, Grover Norquist, planned it this way. I doubt he has ever read Persson and Svensson, but understood intuitively that the tax pledge was guaranteed to ratchet down the size of government forever. It wouldn’t happen all at once, but over a period of decades. The history of fiscal policy since the pledge was originated in 1988 is, sadly, proof that it has worked exactly as he hoped.
“Therefore, any deficit reduction will either consist solely of spending cuts or pass with only Democratic votes, as was the case in 1993.”
Yep, the Norquist cycle continues:
1. The GOP engages in a fiscally egregious agenda
2. The Democrats eventually regain control after the GOP’s politicies create a financial disaster and the GOP immediately starts using rising deficits to argue for cutting entitlements and public programs
3. Democrats try to undo the GOP’s fiscal damage, including with tax hikes, and get politically punished
4. The GOP regains control and immediately forgets about deficits and pursues its fiscally egregious agenda. And Grover Norquist gets really happy.
That’s been the political cycle playing out in the US ever since the GOP embraced ‘Reaganomics’ and the Myth of the Magical Trickle-Down Tax Cut. And this is Bruce Bartlett — one of the architects of that myth [49] — who is reminding us of this cycle.
But as important as Bruce Bartlett’s lesson about the impending trap that the GOP and its mega-donor puppetmasters are laying is for the American public at this moment, perhaps the most important lesson is that Bruce Bartlett needed to explain this lesson in the first place. Because this is just basic history at this point. It was super helpful that Bruce Bartlett wrote that article but it shouldn’t be super helpful because we should already all know this. But Americans don’t know this and it’s that mass collective amnesia about significant issues — issues like how the GOP exploits mass amnesia to wage a class war on behalf of fascist mega-donors — that allows this cycle to continue without end. We’re so collectively bad at learning from history that we haven’t even learned that we’re collectively bad at learning from history. It’s hard to think of a more important lesson than the fact that the American public is largely incapable of learning important lessons from contemporary history because that’s why this same scam keeps happening over and over.
Mass amnesia over contemporary history is so predictable in the US that the GOP and its mega-donors can plot a strategy predicated on the above cycle predictably playing out one more time. That’s the conclusion Bruce Bartlett has arrived at and it seems like a very reasonable conclusion. A plan predicated on the assumpion of mass amnesia is a very GOP-ish plan to execute. No matter how Big the Lie gets with the GOP, the people forget that it happened. Or never learn in the first place. And it just keeps happening over and over. Because if the time-inconsistency strategy works once it’s probably going to keep working over and over because it only works when the public doesn’t know its own history. A political strategy of rooted in the time-inconsistency theory is a political strategy rooted in an awareness of a public mass lack of awareness of happened. And that awareness that the GOP clearly possesses means GOP can reuse the time-inconsistency strategy over and over. Which the GOP appears to be doing. Again.
So, because the current tax madness is just the latest iteration of an ongoing scam cycle rooted in the exploitation of a poor national memory, it’s going to be important to keep in mind that rebuilding the capacity for a meaningful national memory should probably be part of the national response to the tax monstrosity that’s about to be unleashed. Making a point of actively remembering for years to come that the GOP unleashed a fiscal time-bomb (for the benefit of the super-rich) is probably one of the most valuable things the Democrats and public at large can do if this tax bill becomes law.
Imagine a big political fight in a decade (or more likeliy 2024, or even 2020), over whether or not to make the temporary tax cuts for the poor and middle-class permanent. Being able to remember contemporary history — history that includes the economic boom that followed the Clinton tax hikes — will be invaluable in that kind of political situation. Because thanks to these tax cuts and the damage they’re most assuredly going to do to the federal budget, the US public is soon going to be facing a stark choice over whether or not to raise taxes or massively cut federal programs like Medicare that the public loves. Don’t forget, forcing stark choices like that and betting that the Democrats and public won’t choose to raise taxes and cut spending instead is part of the GOP/Norquist long-term time-inconsistency plan too. And that’s why it’s going to be so important to develop a national memory capable of recalling things like the fact that Democratic tax hikes are done to fix GOP fiscal damage and they’ve been largely successful.
The GOP is planning on creating a giant fiscal mess that it knows Democrats are going to be forced to clean up and the GOP is planning on using that as an opportunity to regain power by bashing the Democrats for cleaning up the mess. We know that’s likely the plan because it’s the same plan we’ve watched play out for decades to the GOP’s enormous success. And it’s going to remain the GOP’s plan as long as we keep collectively forgetting that it remains the GOP’s plan.
While Bruce Bartlett is absolutely correct that the best outcome is for the public to prevent this tax bill from becoming law in the first place, it’s also pretty clear that it really could easily become law at this point even if it’s going to damage the GOP to do so. Passing fiscally disastrous tax cuts for the wealthy and corporations is one of the GOP’s core reasons for existing. It’s what it does even when that’s not the best move politically because keeping mega-donors happy is the GOP’s long-term best political move. As Barlett pointed out, the GOP is probably planning on losing in the House and Senate in upcoming elections and maybe even the White House too. Handing control back to the Democrats after creating a fiscal crisis is part of the cycle. Unless of handful of GOP Senators save the day it’s hard to see what’s going to stop it’s passage.
And if it passes, the US is going to be facing a general set of choices
1. Trickle-down economics magically start working and the projected deficits never materialize. Hooray.
2. The projected deficits materialize and public spending is cut to deal with them.
3. The projected deficits materialize and taxes are raised to deal with them.
4. Some combination of 2. and 3.
Unless ill-advised trickle-down economics suddenly works, the US is going to have to raise taxes or cut spending. And the GOP is betting that even if the Democrats take control in coming years they’ll still be pressured into cutting spending instead of raising taxes.
So it’s probably not too early to start laying the groundwork for a political movement dedicated to building the national collective awareness about the time-inconsistency theory of politics and the fact the GOP has been employing this theory for a long time. There is no logical reason the Democrats should be politically punished for cleaning up the GOP’s fiscal messes rewarded for raising taxes on the rich. Especially when polls show the American public would much rather see taxes raised on corporations and the wealthy, not lowered dramatically [58]. Which is a finding [59] polls [60] have shown [61] for [62] years [63]. When the Democrats are forced to raise taxes to clean up the GOP’s giant fiscal mess, there’s not reason that can’t be a positive political move for Democrats too. But for that to happen the American public needs to have a working memory of this same old scam cycle that this the GOP is trying to do right now and has done in the past.
So what better time than the present for a public education campaign to teach the American public about the contemporary history of the GOP creating fiscal messes with tax cuts for the rich and the Democrats cleaning up that mess and getting politically punished for doing so. The history of GOP tax scams is coming alive once again as it repeats itself, so the American public should probably learn that history this time around [64].