With Donald Trump in the White House and Republican majorities in both houses of Congress, tax cuts should be pretty much guaranteed.
And the precedent of George W. Bush’s tax policy has left even many of Trump’s strongest critics assuming he’ll have a pretty easy time doing it. The conceptually ambitious tax reform concept House Republicans have been pushing has been a hard lift, but now that Trump has embraced the idea that tax cuts don’t necessarily need to be paid for, it should be smooth sailing.
Actually looking back at the details of the 2001 situation, however, should make you more skeptical. Bush had substantial advantages that Trump lacks, ranging from budget projections and public opinion that were much friendlier to the tax-cutting cause to the simple fact that he had a White House team that was well-equipped to engage productively with Congress.
Republicans will almost certainly find some way to enact some kind of tax cut, but they’re going to find that doing anything on the scale that Bush achieved — to say nothing of the larger scale that Trump has proposed — is a lot more difficult than most observers currently recognize.
The budget surplus mattered
Back in 2001, Congress believed the federal government was facing surpluses as far as the eye could see. Something, clearly, had to be done with the money, and Republican members of Congress were united in the belief that the “something” should be tax cuts.
They were eager to rid the federal government of what amounted to excess money — money that, as long as it was hanging around in the federal coffers, was an open invitation to activist government.
After the election, Alan Greenspan — who at the time enjoyed an unimpeachable reputation as “the maestro” and architect of the 1990s boom — even went before Congress and testified that failing to rid the country of the budget surplus was dangerous and socialistic. HIs argument was that it could easily lead to the total elimination of the national debt, followed by federal ownership of stocks and other financial assets.
Democrats did not have a clear response to this idea that the government was basically overcharging taxpayers and cuts were needed.
The party divisions have reversed
Back in 2001, Democrats were fundamentally divided. Liberals wanted to use the money to finance new domestic spending. But the party’s then-dominant moderate wing wanted to continue running budget surpluses in order to pay down the national debt as a form of pre-saving for the future point when Social Security would run a deficit. Most voters seem to have found this idea confusing (it’s what Al Gore’s much-mocked “lockbox” was trying to describe), and combined with intraparty disagreement, it led to a very muddled message.
Today’s Democrats are divided in their own way, but not in a way that’s relevant to the debate over tax cuts. Hillary Clinton ran on a proposal to raise taxes on high-income households to finance a bunch of new spending. Bernie Sanders ran against her on a proposal to raise taxes on high-income households by more, plus higher taxes on middle-class households in order to finance a much larger amount of new spending.
Opposition to a giant tax cut for the rich is a convenient least common denominator position that unites both wings of the Democratic Party. Republicans, meanwhile, are divided nowadays between the idea of trying to enact permanent, paid-for tax cuts as House Speaker Paul Ryan has proposed versus Trump’s preference for Bush-style, deficit-increasing temporary ones.
Public opinion has shifted way to the left
One big reason for the shifting party unity dynamics is that the underlying shape of public opinion has changed. Tax cutters’ fundamental advantage 10 to 20 years ago was that while most important individual federal spending programs were popular, public opinion was ideologically conservative and embraced small-government philosophy in the abstract.
That has now changed, according to trend data from the Pew Research Center, which shows that these days not only are individual programs popular but a thin majority of the public even says that in the abstract, they favor more big government.
Had Bush paid for his tax cuts with specific offsetting spending cuts, he likely would have ended up facing significant public backlash because there was no way to cut that much spending without touching popular programs. But by separating tax issues from spending issues, he was able to insulate himself at a time when the voters theoretically favored lower taxes. These days the idea that tax cuts per se are a mistake regardless of distributive issues will gain more purchase.
Meanwhile, 54 percent of Americans say they feel their current tax load is fair, while upward of 70 percent say they are bothered that corporations and the wealthy don’t pay their fair share in taxes. Republicans need to try to find unity on the tax issue at a time when broad currents of public opinion are very skeptical of their approach.
Bush’s tax strategy didn’t work
The Bush administration’s approach to taxes was a multi-step effort.
- First, use the budget reconciliation process to ensure that tax cuts can be enacted with 50 Senate votes — even though that means they will have to sunset after 10 years.
- Second, yoke the tax cuts for the highest-income families to broader-based tax cuts that most households will receive to increase the political constituency.
- Third, when it comes time for the tax cuts to expire, refuse to extend the broad-based cuts unless the cuts for the rich are also extended.
It took a lot of hemming and hawing and drama, but this gambit ultimately failed during the “fiscal cliff” incident of Christmas 2012. The top marginal tax rates went up even as the broad-based rate cuts were made permanent. This is often portrayed as a partial win for the GOP because it meant that most of the Bush tax cuts were extended. But that’s a misunderstanding. The ideological purpose of the whole exercise was to obtain permanent cuts in the top rates. The other stuff was in there to sweeten the deal.
When the top rates went back up (now, thanks to Affordable Care Act taxes, to a higher level than they had been pre-Bush), the Republican strategy had failed. That the sweeteners were kept in place only makes it harder to find new sweeteners in the future.
This failure is the reason that Ryan and his allies like Ways and Means Committee Chair Kevin Brady began to focus on finding a path to permanent tax cuts. That means tax cuts that need to be paid for, either with Medicaid cuts (as in the American Health Care Act) or countervailing tax increases (as in the destination-based cash flow tax).
Trump seems to want to throw that strategy overboard in favor of a return to the Bush approach. But the fact that the Bush approach failed to achieve the conservative movement’s key ideological goals means Trump will get pushback to this idea from members of Congress who, unlike him, actually understand what conservative movement goals are and care about them.
The Trump White House is a mess
Last but by no means least, there’s the question of the Republican Party’s leadership, or lack thereof. The president of the United States has never before served in any public sector job at any level. Upon taking office, he wanted to rely on his chief of staff, Reince Priebus, to help guide his initiatives through Capitol Hill. But Priebus has also never before served in any public sector job at any level. Priebus’s initial rival for power in the White House, chief strategist Steve Bannon, has never served before in any public sector job at any level.
The initial fumbling of Affordable Care Act repeal by Priebus and Bannon led Trump to rely more on his son-in-law, senior adviser Jared Kushner, who has never before served in any public sector job at any level. Kushner’s key ally is National Economic Council Director Gary Cohn, who — surprise, surprise — has never before served in any public sector job at any level.
The Bush administration was, by contrast, a powerhouse team led by a president who’d served for years as the chief executive of a large state, backed by a team with deep federal experience.
- Vice President Dick Cheney was a former defense secretary, former White House chief of staff, and former member of Congress.
- Chief of Staff Andy Card was a former deputy chief of staff, former transportation secretary, and former state legislator.
- Deputy Chief of Staff Joshua Bolten was a former deputy assistant to the president for legislative affairs.
- National Economic Council Director Larry Lindsey was a former chief tax economist for the Council of Economic Advisers and a former special assistant to the president.
- Bush had a fully built-out White House Legislative Affairs Office stacked with veteran staffers for key House and Senate leaders by January 30, while Trump only got around to it two months later, even though he had a longer transition.
We’ve already seen that Trump has struggled to get things done during his first 100 days in office. And it’s probably no coincidence that the major exceptions to this are mostly in the realm of immigration policy, where, whatever you think of them, former Sen. Jeff Sessions and retired Gen. John Kelly add up to an experienced team that understands how the government works. Trump’s inability to build a comparable team in other areas of policy operates as a constant thumb on the scales against the odds of success.
There’s probably going to be a tax cut
None of which is to say that there’s not going to be any kind of tax cut.
At a minimum, if Republicans are willing to settle for temporary tax cuts, there is some dollar amount that will clear the Senate and become law. It simply may take more time to get there than it did in 2001, in part because many members of Congress won’t want to settle for temporary cuts, and the total dollar amount may wind up needing to get smaller.
On the business side, both Hillary Clinton and Chuck Schumer have at various times floated a plan that would pair a corporate tax cut with new infrastructure spending, so something like this could likely secure bipartisan support.
For the country to go through a period of unified Republican Party control of the federal government without any kind of tax cut would be a simply mind-boggling outcome. But to get there, at some point someone needs to start putting pen to paper on a plan that could feasibly pass Congress. So far, nobody has even really gotten started.