Jonathan Chait wrote an important article the other day that I don’t believe garnered sufficient attention here:
Paul Ryan's Dream of Tax Cuts for the Rich Will not be Denied
The gist of the article is that the GOP has created an intricate legislative agenda for the next two years. The two keys to enacting this agenda are: (1) timing, (2) sequence, and (3) specific, controversial policies. As Chait recognizes, all three of these factors are ruinously (for the GOP) close to not being met.
The basic House Republican plan is to cut taxes by about $3 trillion over a decade. Basically the entire proceeds of their plan would go to the rich — once it’s fully phased in, the highest-earning one percent would get 99.6 percent of the benefit, according to the Tax Policy Center’s analysis of the plan last fall...The drive to cut these taxes reflects the party’s deep beliefs that overtaxation of the rich is the most serious form of oppression in modern political life, and they are prepared to spend enormous political capital to rectify this evil.
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Republicans are struggling because they want to avoid replicating what turned out to be the fatal weakness of the Bush tax cuts. Republicans know that they won’t get Democratic support for a big tax cut for the rich, and since Democrats have 48 Senate votes, well more than the 41 needed to sustain a filibuster, Republicans need to pass their tax cuts in a bill that can evade a filibuster. The only kind of bill that can do this is a budget-reconciliation bill. But budget-reconciliation bills have certain restrictions on their design, called “the Byrd Rule.” One of those restrictions is that they cannot increase the budget deficit outside of the ten-year period after which they are passed. A reconciliation bill can increase deficits in the short run, but if it has any costs after a decade, it can be filibustered, and is therefore useless for Republican purposes.
As Chait points out in his piece, the Bush tax cuts also ran into the Byrd Rule buzzsaw. The GOP dealt with it back then by simply phasing out the Bush tax cuts after 10 years. Hence the constant brinksmanship during the Obama era over their extension/repeal.
The current GOP legislative agenda is built entirely around making huge tax cuts permanent. It overshadows everything else, including repeal/replace of the Affordable Care Act. They care about giving money to rich people, and don’t give a damn what they have to get rid of to make that happen.
Because of those pesky deficit reduction rules, Republicans need to find a way to make it seem as if what they are about to do to federal tax policy is revenue neutral. As explained above, this is the only way they can get it past a Democratic filibuster via reconciliation. How do they do that while giving away trillions of dollars to corporations and rich people?
Well, as Chait explains, they have to engage in an epic case of fuzzy math to get there. First, the ridiculous and absurd practice of “dynamic scoring” — a Bush administration favorite — is coming back with a vengeance. In sum, dynamic scoring — as the GOP intends to employ it — uses fairies and unicorns to make it look like tax cuts will make the economy grow at a ridiculously overheated pace, thus making it look like billions or trillions more in tax dollars will be collected. It is a foolish practice that was proven wrong by experience over the last 15 years.
Second, repeal and replace of Obamacare. The GOP needs to make sure that the baseline tax revenue is far lower when they start tinkering with the tax code. If they get rid of the taxes created by the ACA, it means they won’t have to find another approximately $1.2 trillion dollars in revenue over the next 10 years when they finally get to their tax plan.
You might think multiple trillions of dollars in fuzzy math would be enough, but it’s really not. The GOP also needs to find more revenue yet in the tax code for their corporate giveaway. Because they cannot abide by making the rich pay more (the entire object of this ridiculous exercise is to make sure the rich pay less, after all), they have to take it out of the hide of the american working class.
The current lynchpin of this strategy is the so-called Border Adjustment Tax. Chait explains it better than I can:
This is a complicated idea that would essentially tax imported goods. The concept has a lot of support among tax experts, at least in theory. The idea has several attractions for the GOP. First, by increasing costs of imported goods and decreasing costs on exports, it would seem to fulfill Trump’s promise of an “America First” trade policy. Second, if designed properly, it would raise another trillion dollars a decade or so. And, because it would function as a kind of sales tax, it would be paid mostly by the middle class and the poor. Essentially, it would free up another trillion dollars for lower taxes to be paid by the rich.
In sum, make people who live paycheck to paycheck and shop at places like Walmart would pay up to 20% more for their daily necessities so rich people can keep more of their obscene profits. It’s worth about $1 trillion in working people's money.
So, you see, what is about to go down is a multi-trillion dollar transfer of wealth and government benefits away from people who need it and it will be turned into cold, hard cash for mega-corporations and the super-wealthy. It is a highway robbery in progress. And they know they have to do it this year, before the 2018 election season starts up.
CAN IT BE STOPPED?
Yes. It can be stopped. And the resistance is key. The ACA delay is already pushing the legislative calendar back. They had originally hoped to have the repeal/replace done this spring, so they could tackle the real business of robbing the American people this summer. That will clearly not happen, as there is unexpected resistance to repealing the ACA, and because we have a weak president who provides no real leadership to anyone, with sinking approval ratings.
Donald Trump’s parade of horribles — I mean, cabinet nominees — have already put them behind. Opposing nominees and forcing debate on them has created political space and created more urgency. As explained above, this legislative strategy is time-critical. It falls apart if it takes too long.
Much depends on the current chaos surrounding the ACA repeal/replace debate. If they are forced to keep many of the ACA provisions, they will have to keep taxes in place to pay for them. Otherwise, they will be blocked by the Byrd Rule yet again and subject to Democratic filibuster on a repeal/replace bill. This will take months to figure out legislatively, in my opinion. And that is good for us. The more we can keep of the ACA and its revenue streams, the more trouble they have finding money later.
There is also trouble brewing on the other two legs of the fuzzy math 3-legged stool. Dynamic scoring is and always has been a joke. The Trump administration is going to move forward with Soviet-like rosy estimates of economic growth going forward, which no one who adheres to honest accounting practices will believe. It will discredit anything the GOP tries to do in terms of scoring. They may still be able to force something through with this type of ridiculous math, but it creates a lot of political space for the opposition and puts deficit hawks in a world of hurt.
The Border Adjustment Tax has, rightfully, come under attack from companies like Walmart, Target, etc. who see it as a business model-changing disaster. Several GOP senators have expressed skepticism or have outright said it’s a no-go in the Senate. If the Border Adjustment Tax fails, the GOP needs to find another trillion dollars. And it may fail in the Senate, throwing the whole legislative strategy and calendar into the garbage pail.
The alternative, of course, is for the GOP to force through something like the Bush tax cuts, with sunset provisions. But keep in mind that in 10 years, we are likely to have either a Democratic President in his/her second term (I hope) or in his/her first term (if Trump/GOP makes it 8 years). We’re back in the same game the Obama administration played with the expiring Bush tax cuts. The GOP does not want to be in that situation again. They want it to be permanent.
We need to deny them everything, at every step. Every low-level executive nominee that gets his/her 30 hours of debate is consequential at this point. What the resistance is doing is currently our best hope. Let’s keep it up.