Opinion: GOP Tax Dilemma — Somebody’s Got to Pay More

There’s a reason tax reform doesn’t happen often

South Dakota Sen. John Thune believes that traditional budget scorekeeping underestimates the dynamic effects of tax cuts on the economy, Shapiro writes. (Tom Williams/CQ Roll Call)
South Dakota Sen. John Thune believes that traditional budget scorekeeping underestimates the dynamic effects of tax cuts on the economy, Shapiro writes. (Tom Williams/CQ Roll Call)
Posted August 8, 2017 at 5:03am

“Any deduction you look at in the tax code has a constituency behind it,” John Thune said last week as we chatted about taxes in his Senate office. “If you are going to do tax reform that is revenue-neutral … that means that you have to kill some deductions or scale them back.”

Too often Republican oratory depicts tax reform as across-the-board rate reductions where everyone wins and nobody loses. It is like Garrison Keillor’s Lake Wobegon — “where all the children are above average” — but a lot richer.

Thune, to his credit, acknowledges the need for trade-offs or, as they are known in tax lingo, “pay-fors.” As the three-term South Dakota senator, who is third in the Senate GOP leadership and a member of the Finance Committee, put it, “I think there will be a real fight on every one of these potential pay-fors.”

That is the crux of the GOP dilemma over taxes: Who is going to pay for the rate reductions that have been the unifying Republican gospel since the days when Ronald Reagan was a Democrat?

There is a faction in Trumpland that would love to blow up the Congressional Budget Office and the Joint Tax Committee — and let the White House itself concoct its own rosy revenue projections for tax cuts.

House Republicans under Paul Ryan once believed that entitlement cuts, especially in Medicaid, would provide the revenue needed to finance tax cuts. But after the health care debacle, there is scant interest in the Senate in even hearing the word “entitlement.”

Doing the math

Thune, like many Republicans since the Reagan years, believes traditional budget scorekeeping underestimates the dynamic effects of tax cuts on the economy. But even advocates of dynamic scoring acknowledge that the numbers have to add up in the end.

That’s why so much of my conversation with Thune revolved around eliminating or capping the current federal deduction for state and local tax payments.

The upside for Republicans is that ending this deduction would bring in an estimated $1.3 trillion over the next ten years. And the benefits from the current deduction flow disproportionately to residents of high-tax states like California, New York, New Jersey and Connecticut. States that, coincidentally, have only Democratic senators.

This is one tax battle where the House offers the more difficult terrain. According to Inside Elections with Nathan L Gonzales, 13 potentially vulnerable House Republican incumbents come from these three high-tax states. It is difficult to imagine a scenario under which Darrell Issa (California), John Faso (New York) and Rodney Frelinghuysen (New Jersey) vote to raise the taxes of many of their constituents.

Thune raises the hopeful possibility that the cries of anguish from high-tax states could be muted.

“If the people who get the benefit of that [deduction] in the tax code today also get the benefit of some rate reductions,” he said, “you may be able to maintain the status quo.”

Well, maybe. But somehow it is hard to envision endangered Republicans in California and New York handing out re-election bumper stickers with the slogan “We Maintained the Status Quo.”

If Republican interest groups and super PAC barons had their way, the only items on the table would probably be corporate tax benefits and rate reductions for the wealthy. But Republicans have grown sensitive to their portrayal as the party of the rich. It is a major reason why the final stripped-down Senate health care bill eliminated all efforts to repeal the Obamacare taxes on high-income Americans.

In the driver’s seat

All the truth-defying gyrations of the Trump White House cannot erase the burden on congressional Republicans to provide something more tangible than tweets to voters struggling to make ends meet in a lopsided economy. Americans may not know policy details, but they do know that the Republicans are in charge — and so far the GOP has delivered less than a UPS driver traveling by pogo stick.

Corry Bliss, the acclaimed GOP strategist who heads the Congressional Leadership Fund, told me in an interview last week, “The most important thing for 2018 is whether Republicans cut middle-class taxes.”

Note his language. It was not simply “cut taxes” but “cut middle-class taxes.”

Some of it is maintaining the credibility of the Republican majority, Thune admits.

“We have to deliver on tax reform. The experience of health care, if nothing else, points to the necessity of us having to deliver on what was a major campaign theme for the president and Republicans running for Congress,” he said.

In short, what was the point of voting for Republicans if they act like the Gang That Couldn’t Legislate Straight?

A rising stock market does not lift all voters. Which is why the marginal voters that Republicans hope will turn out in 2018 crave something more tangible than trickle-down tax cuts. A reduction of $12.63 in the annual tax bill of a short-haul truck driver in Wilkes-Barre, Pennsylvania, will just not do the trick.

Politically, maybe the Republicans should have tackled taxes before they tried to dismember Obamacare. But because of complicated congressional budget rules, the GOP leadership in both chambers believed they needed the theoretical savings from the repeal legislation to pay for tax cuts.

Now Republicans are learning why true tax reform is a far less frequent occurrence than a total eclipse of the sun visible across America. Russell Long, the legendary chairman of the Senate Finance Committee, popularized a bit of doggerel in the 1970s about everyone’s goal in rewriting the tax code: “Don’t tax you. Don’t tax me. Tax that fellow behind the tree.

Roll Call columnist Walter Shapiro is a veteran of Politics Daily, USA Today, Time, Newsweek and The Washington Post. Follow him on Twitter @MrWalterShapiro.