The Republican-led tax bill looks sure to pass, so long as the GOP can get one group of senators on board: Republicans worried about the national debt.
It’s a bill with massive tax cuts for corporations, reduced rates, and a doubling of the standard deduction — all of which is difficult to square with the reluctance to make sweeping changes elsewhere to pay for the cuts.
All told, the bill would increase the deficit by $1.5 trillion in the first 10 years, and then uses budget gimmicks and rosy math to make it seem like the national debt is untouched in the long run.
This is odd for a Republican Party committed to talking about the dangers of a deepening deficit. Though some have waved away concerns in favor of getting a tax bill done, some conservative purists are beginning to signal that the plan isn’t fiscally conscious enough.
Over the weekend, Sen. Jerry Moran (R-KS) raised concerns about the current tax bill with constituents, the Topeka Capital-Journal reported.
"The easiest way to say this is, I am for some tax bill. Can we find taxes to cut that grow the economy?" Moran said. "We don't want to increase the debt and deficit as a result of tax cuts. My goal is to find out which taxes you cut can actually help create more jobs, better jobs, higher-paying jobs … and which ones don't do that. Not all of them do that.”
He joins a growing contingent of possible Republican defectors.
“The savings, the score, it just isn’t valid because you know that they’re not going to follow through,” Sen. Jeff Flake (R-AZ) recently said of the tax plan’s lack of deficit consciousness. “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.”
So far, the tax effort has been progressing right on schedule — but these kinds of comments have Republican leaders on alert. The Senate GOP can only afford to lose two votes — but already there are upward of five deficit hawk Republicans who could pose a major barrier between President Donald Trump and a signed tax reform plan.
This tax bill could pass. Or it could all fall apart under the weight of adding $1.5 trillion to the national debt.
Deficit hawks could be the real barrier to passing tax reform
Unlike with the health care negotiations, the politics of a tax overhaul is much more opaque than conservatives versus moderates.
Within the moderate and conservative factions of the Republican Party, the tension boils down to whom Republicans want to cut taxes for, how deeply they’d like to lower rates, and whether to offset the costs at all.
When Republicans set up the process for their tax reform bill, they planned to increase the deficit by $1.5 trillion (and no more than $1.5 trillion). It was the result of a deal struck between Sen. Pat Toomey (PA) and deficit hawk Sen. Bob Corker (TN).
But Corker has said he will not vote for a tax plan “adding one penny to the deficit.” A member of the Senate Budget Committee who recently announced his retirement from the Senate in 2018, Corker wants to stay true to his deficit hawkishness — even though the party seems to be signaling that the deficit should not stand in the way of slashing individual and corporate tax rates.
He has since doubled down on the sentiment. “There are several of us that are trying to figure out a way to make sure this doesn’t hurt us relative to deficits,” he told Politico earlier this month. “We’re looking globally at the whole thing and trying to do what we can to make it more fiscally palatable.”
Then he clarified that “with realistic growth projections, it cannot produce a deficit,” to Bloomberg. “There is no way in hell I’m voting for it.” He didn’t clarify what “realistic” meant.
Corker isn’t alone. Flake, an ardent fiscal conservative of Arizona, raised his eyebrows at the House and Senate tax bills. (Trump also tweeted that Flake would be voting against the tax bill, but it’s unclear why.) And Sen. James Lankford (R-OK) has also warned of the dangers of deficit recklessness. Now Moran is signaling he’s interested in a fiscally responsible bill as well — perhaps as a result of the failure of trickle-down policies in his own state.
Just three senators could tank the bill — meaning Republicans need to assuage their concerns enough to get their votes.
The tax math problem facing Republicans
The tax cut bill Republicans are pushing through the Senate will live and die by a complicated budget rule known as the Byrd Rule, a condition of the “reconciliation” process that allows Republicans to pass legislation with only 51 votes in the Senate. Because of how they set it up, Republicans’ tax bill can only increase the deficit by $1.5 trillion in the first 10 years, and can’t increase the national debt outside that window.
But as it stands, the House tax bill doesn’t pass the test, and the Senate’s only barely does. Both the House and Senate bills have tried to repeal or cap various deductions — some big, some small — earning the ire of various factions of the party. But they haven’t yet gotten the math to work between chambers.
The Congressional Budget Office estimates that the House bill will increase the deficit past the initial 10-year window, and the Senate bill sunsets almost all the individual tax relief to prevent a deficit increase outside the 10-year window.
There’s no question that top Republicans are desperately in search of budget gimmicks and rosy economic projections to make it all work. The question is if their ranks will go along with it.
Republicans are using budget gimmicks to get around the deficit. Will someone notice?
Already Republicans are using gimmicks to get around this, the major one being pushing a sweeping tax cut that will sunset after 10 years. This is what then-President George W. Bush did with his tax cuts under budget reconciliation in 2001, and it essentially gets around the deficit restriction by making the tax cuts temporary. The House’s bill includes some of this, sunsetting the $300 family credit after five years. The Senate’s takes it much further, sunsetting almost all individual tax reforms in 2025.
There has long been talk of a temporary and permanent split in tax reform proposals among Republican members. But it comes down to whose tax cuts would be permanent and whose temporary. At the start of the Senate’s markup, Sen. Orrin Hatch (R-UT), who chairs the Finance Committee, said his committee had "every intention of making the business reforms permanent," which he then executed with his chair’s amendment to the bill. It means the tax plan is deficit-friendly for now, but most Republican members know that leadership is operating under the assumption that these tax cuts will be renewed in 10 years — just as Bush’s were.
Either way, Republicans are relying on projections of increased economic growth from tax cuts to offset the revenue losses from those cuts, known as “dynamic scoring,” to sell their tax bill.
There are also rumors that the Senate Budget Committee could use a different, more ideologically conservative score of their tax plan instead of the CBO’s evaluation, like the Tax Foundation’s score or the Treasury Department’s.
But currently, even under the rosiest of projections, economic growth alone doesn’t seem to be enough to offset the losses from the deepest cuts Republicans have proposed. And fiscal conservatives aren’t fully buying the numbers touted by their leadership.
“We cannot simply rely on rosy economic assumptions, rosy growth rates to fill in the gap; we’ve got to make tough decisions,” Flake said when the first tax bill was released. “We’ve been hearing a lot about cuts, cuts, cuts. If we are going to do cuts, cuts, cuts, we have got to do wholesale reform. With the national debt exceeding $20 trillion, we have got to do this seriously.”
The question is: Will deficit hawk senators tank the tax bill over it?