clock menu more-arrow no yes mobile

Filed under:

Why can’t anyone play the tax game?

Republicans are flailing on taxes because they don’t understand how to set up policy fights they can win.

Senate Finance Committee Holds Hearing On Tax Reform
Former Sen. Bob Packwood (L) (R-OR) and former Sen. Bill Bradley (D-NJ) testify before the Senate Finance Committee. The committee heard testimony on lessons learned from the Tax Reform Act of 1986 during the hearing.
Win McNamee/Getty Images

No sooner did House Republicans unveil the “Tax Cuts and Jobs Act” on Thursday than Republican members of the House and Senate, along with some of the heavyweight lobbying groups in Washington such as the National Association of Home Builders and the National Realtors Association, announced their opposition to the bill as drafted, because of specific provisions affecting them. Others, mostly senators, objected to the bill’s increase in the 10-year deficit by $1.5 trillion; a few said it provided too little benefit to the middle class or to families with children.

Perhaps more significantly, Republican leaders seemed taken by surprise by this opposition, as if they had expected traditional allies to fall in line, regardless of the details, simply because of their ideological consensus in favor of tax cuts.

That ideological passion, or self-interest, is too deep and unshakable to say with any confidence that Congress won’t pass a tax cut, but this starting bid is clearly no more than a snapshot of a proposal that will be constantly changing as its sponsors search for a working majority that can pass it.

One obstacle has been that President Trump and congressional Republicans seem to have different views on taxes — although, as with health care, Trump’s current position seems to be that he’ll sign anything that’s a big cut — but they do share a common trait: an inability to spot the dozens of fights that a tax bill involves, and to find a strategy to win as many of those fights as possible in order to achieve final passage.

There’s a tendency to treat complex legislation like a tax or health bill as if it were a single, fixed thing and voters, legislators, and interest groups are “for it” or “against it.” But the reality is that the tax bill should be seen as a series of conflicts. Each one, each provision, creates a fight, with visible winners and losers.

What makes the politics of tax policy fun and sometimes fascinating is that those winners and losers are pretty easy to identify, and if you can foresee them, you can map a path through them, sometimes. A moderately competent staffer shouldn’t need to float ideas as "trial balloons."

Take, for example, the Republican proposal to eliminate the state/local deduction. The first impulse seems to have been that it hits a lot of blue states whose Democratic senators won’t vote for the bill anyway. But look at a map of highest state/local tax burdens, and you see a few red states like Iowa, plus many vulnerable Republican House members in New York, New Jersey, and California, whose votes the bill will need.

Mess with 401(k)s, as proposed last week and it creates a broad public opinion problem (details don't matter), plus fierce opposition from a particular subset of the financial industry.

The combination of the expanded standard deduction, new limits on the mortgage interest deduction, and elimination of the state and local tax deduction (even as modified to keep most property taxes deductible) is guaranteed to rouse either strong or medium-strong opposition from the homebuilders, lenders, and other real estate sectors.

It’s a little harder to spot the votes that might be lost because of those provisions, but not impossible: Start by looking for members with major financial support from real estate interests, members who were in that business before politics, and members with major homebuilders in their states.

To actually enact a tax bill, legislative leaders need a kind of power map: Who needs what? What fights are winnable, which sectors can be bargained with, and which can be written off? How can certain alliances create a sense of momentum for the bill, which will then convince other interests that they should at least try to get a seat at the table, rather than opposing everything?

One strategy, which is basically the story of the 1986 tax reform bill, involves agreement on a broad principle that eliminates all the tax breaks and loopholes at once, in the interest of a broad base, lower rates, and a modestly more progressive system. Reform advocates in the 1980s essentially agreed to give up the benefits most important to their own states or districts and asked their colleagues to do the same, in the interest of a bigger principle. They knew that as soon as they started negotiating each break one by one, a process of logrolling would begin — senators who wanted oil and gas tax breaks would support those who wanted to keep the state and local deduction, for example, and before too long all the old tax breaks would find their way back into the bill.

In fact, that’s exactly what happened. As the bill began its journey through the Senate, it immediately filled back up with breaks and gimmicks, until, in the key dramatic moment in the book Showdown at Gucci Gulch, Senate Finance Committee Chair Bob Packwood goes to lunch with a staffer, they down a couple of pitchers of beer, and decide to throw out the whole bill and start from scratch with the simplest, cleanest proposal possible. (Packwood was a heavy day drinker as well as a harasser of female staff, but he was undeniably a legislative talent.)

Today’s Republicans aren’t doing anything like that at all. They’re not starting from any principle of a clean, fair, or reformed tax code. They’re just throwing individual tax provisions on the table to pay for cuts, and watching who reacts. Without an anchoring principle, most of them are likely to be whittled down.

Another approach is the strategy Republicans took in 2001 and again in 2003: pure tax cuts with no attempt to finance them. In both cases, they used the narrow rules of budget reconciliation to control the process and avoid compromising with Democrats, even though many Democrats wanted to support the cuts. With a budget surplus, and a popular president, they could do a tax bill that had mostly winners, especially at the top but with some benefits spread down to the middle class and no real losers. But the conditions of 2001 are not the ones Republicans of this moment are working with.

Tax policy is a really fascinating game, a set of challenges that are about politics as much as policy, created in part by path dependence (existing rules create expectations and constituencies), and connected to local interests. It can be really hard to maneuver through at the best of times — but add a narrow partisan margin (which means there's exactly one path to a winning coalition), a clueless president, and not even the basic competence of earlier congressional leaders such as former Ways and Means Chair Dave Camp, who produced a plausible reform plan before retiring in 2014, and it's really embarrassing to watch. And the more people (that is, lobbyists) begin to doubt that Congress will get anything done, the less likely they are to want to bargain or give something up themselves.

No one seems to know how to play this game: not the president, not the absurdly unqualified secretary of the Treasury, not even, it seems, any congressional leaders. Either they’ll learn it or they will score the second big legislative failure of their current turn in power.