Why Does Everyone Think The GOP Must Pass This Tax Bill To Be Saved In 2018?
I know that the current Congressional Republican caucus is pretty much entirely in the pocket of plutocratic billionaires like the Kochs and Mercers, but I am completely befuddled as to why the party believes that they will suffer a bloodbath in the 2018 election if they don’t pass a tax cut. The reality, based on the tax plan that was released today, is that they will probably suffer a bloodbath if they do pass this bill. So, other than the fear of losing big donor money, there is really no good reason for this tax cut.
The driver of everything in the bill is the $1 trillion in tax cuts for businesses by reducing the statutory corporate tax rate from 35% to 20%. This is actually a reward for a decade of corporate tax avoidance. The profits that corporations hold overseas in order to avoid paying their obligatory US taxes do not have to be repatriated in order for those companies to invest in the US. Money is fungible and those corporations have access to that money every single day to do what they want with it. All this bill does is reward those companies for the tax avoidance they have already engaged in and it does very little, other than perhaps make our tax rates slightly more competitive, to prevent it from continuing. There will always be another country willing to offer lower taxes in order to spur business investment, meaning that corporate tax avoidance will probably continue as usual, but at a slightly lower level. Moreover, the US just went through a corporate tax repatriation cut back in 2004. Wouldn’t it be nice if we could all withhold our taxes for a few years and then have the government offer us a tax break so that we finally pay them. And then do it again. That’s what corporations have effectively done.
Of course, there is also the more basic question of why corporations need a tax cut at all. After all, the corporations are hauling in record profits:
//fred.stlouisfed.org/graph/graph-landing.php?g=fnsY&width=670&height=475
As Paul Krugman points out, this corporate tax cut will actually be a $700 billion windfall for foreign investors. That’s putting America first. Excluding multi-millionaires who will receive 10% of the tax cuts via the estate tax repeal, other individuals in total will only receive $300 billion in tax cuts, less than half of what foreigners would get. And the large majority of that $300 billion goes to the top 1/2 of 1% via the repeal of the alternative minimum tax and the reduction in the pass-through rate. All tolled, 75% of the entire tax cut goes to the wealthy and corporations. And while the corporate tax cut is permanent, portions of the tax breaks for individuals will phase out in 2022.
We all know that tax bills are in many ways political documents but the extent to which this bill seems to purposely hurt blue state voters is something I don’t remember seeing before. The mortgage deduction limit hits these areas of the country with higher housing costs, largely blue voters. The repeal of the state and local tax deduction hits high tax states and cities, again, primarily blue voters. The capping of property tax write-offs at $10,000 again largely hits those same blue voters in areas with higher housing costs. All this would be on top of the present situation where blue states already massively subsidize red states, further dividing the country as a whole and exacerbating the urban/rural divide.
The Republican version of this tax bill is obviously designed simply to get it through the House. There will be lots of defections from blue state Republicans but probably not enough to keep the bill from passing. In effect, Paul Ryan will be repeating what he did with the health care bill, essentially dumping it in the Senate’s lap and forcing them to deal with all the issues. And there are plenty, beyond what I’ve mentioned above. It’s quite possible that the bill will actually cost more than the $1.5 trillion that the budget framework requires. In addition, it does not appear that the bill will not effect the long-term deficit which is required in order to fall under the Senate’s reconciliation rules and avoid a filibuster.
Republicans have already backed away from their promise that every American will see a tax cut. Now Kevin Brady is touting that everyone “will be better off”, whatever that means. In essence, the bill provides a small, and potentially temporary, cut to the middle class and raises taxes on a significant number of upper middle class taxpayers in order to provide large tax cuts to foreigners, multi-millionaires, and corporations. That seems like it might not be a winning strategy.
A Pew poll released today shows that Democrats are favored on virtually every issue facing the country today. On taxes, a traditional strength of the GOP, Democrats are currently favored by 7 points. On the budget deficit, incredibly, Democrats are now favored by 2 points. The economy is, as Trump continues to remind us, is in pretty good shape and its strength is one of the things from keeping Trump from being impeached. But even on that issue, Democrats are favored by 3 points. According to a poll I saw this afternoon, this tax plan is already 10 points underwater. And that’s before any sustained and targeted opposition.
Putting all this together, it continues to baffle me as to why the conventional wisdom still maintains that passing this tax cut is the only thing that can save Republicans in 2018. Looking at the bill, it is hard to see how this bill appeals to the base. They didn’t vote for more tax cuts for foreigners, corporations, and multi-millionaires. They voted for the culture war – for the wall and mass deportations. There is nothing in this tax bill that would really get them excited. But perhaps the GOP thinks they can fool the base one more time.
