When All Else Fails, Cut Taxes for the Rich

(Photo: AP/Tom Williams/CQ Roll Call)

Treasury Secretary Steve Mnuchin, center, is introduced by House Majority Leader Kevin McCarthy, left, and Representative Jeb Hensarling during Mnuchin's confirmation hearing on January 19, 2017.

"Doing big things is hard," said Speaker of the House Paul Ryan, after spending all of a couple of weeks trying and failing to remake the American health-care system. Had he known beforehand, he might have informed President Trump, who remarked before Ryan's bill went down to defeat that "nobody knew that health care could be so complicated." Armed with their newfound wisdom, Ryan, Trump, and the rest of the GOP are set to try again, only this time with a topic nearly as complex: the U.S. tax code. They're going to face some of the same problems, especially divisions among Republicans on what they should and shouldn't include in their legislation. But unlike with health care, there's a way out of those internal conflicts that every Republican will be able to live with, so long as they scale back their ambitions.

The first thing to understand is that there's a difference between "tax reform" and tax cuts. Tax cuts are relatively straightforward: Cut some rates, eliminate some specific taxes, and you're good to go. Tax reform is far more complicated, because it involves more fundamental changes to the way we generate revenue. Republicans would like to enact sweeping reforms that bring the entire system more in line with their vision of a country whose wealthy citizens and corporations no longer gasp for air as the taxman's boot presses so cruelly upon their necks.

But there are a number of reasons why it isn't going to be easy. The first is a bit of Senate arcana called the Byrd Rule, which in this case would require 60 votes for any bill that increased the deficit after ten years. To get around that requirement (so that they wouldn't need to obtain Democratic votes), Republicans could pass tax reform that sunsets after ten years. Which would, of course, be deeply unsatisfying. That's what they had to do when they passed George W. Bush's tax cuts, and although most of them ended up getting extended when they reached their expiration date, Barack Obama did manage to negotiate an increase for the wealthiest taxpayers as part of the "fiscal cliff" deal in 2013. Republicans certainly don't want a repeat of that.

But even more pressing, they don't actually agree on all the changes they'd like to make to the tax code. The border adjustment tax, for instance, is supported by Ryan and some others—it would provide a great deal of revenue by taxing imports, with the goal of boosting U.S. manufacturers. But there are powerful interests who find it abhorrent, like retailers who'd have to increase prices. Perhaps most importantly, the Koch brothers are mounting what The New York Times called "a furious campaign" against the tax, and in Republican politics, the Kochs usually get what they want.

So don't bet on that tax surviving, which will make it even harder for them to come up with a package that doesn't explode the deficit. The way Republicans usually handle that problem is to say, yes, we want to cut taxes, but we'll also close loopholes, so the whole thing will balance out. The problem is that they never say which loopholes they'll close. This too is much like health care, where they were vague about what their replacement plan for Obamacare would involve, and once they were forced to specify something, nobody liked it and the whole thing fell apart.

The trouble with loopholes is that they're all there for a reason (usually because somebody with the power to influence the process wanted them there), and one person's loophole is another person's engine of job creation. Once you threaten to remove them, all those powerful interests will descend on Capitol Hill, each one demanding that its particular benefit be preserved.

Now, it's possible that the crack team at the White House and the Republican geniuses on Capitol Hill will get together and quickly find an elegant solution to all the conflicts that overhauling the tax code will bring up. Possible, that is, in the sense that it wouldn't actually violate any laws of physics. But likely? No.

And what will Republicans do then? Chances are that they'll cast off the ideas and proposals that are too difficult, displease powerful interests, or significant portions of their party can't live with. What remains after that will probably look a lot like the Bush tax cuts: a few morsels doled out to middle-class and lower-income families, with most of the benefits going to the rich and to corporations. We can predict that's what it will look like because that's what just about every Republican tax plan looks like. The details of each may differ, but they all have in common that the wealthy get most of the benefit. And don't worry about all that populist stuff Trump said during the campaign, or about Treasury Secretary Steve Mnuchin's pledge after the election that "any reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class." Nobody believed it when he said it, and nobody believes it now.

If and when Republicans pass some kind of tax cut, they will proclaim it an extraordinary victory for the American people and the American economy, guaranteed to open the sluice gates on a flood of jobs and wealth and deliver us to the prosperous future we've dreamed of. If experience is any guide, no such thing will happen. You may remember that Republicans insisted that the Bush tax cuts would supercharge GDP and job growth; what actually ensued was years of economic doldrums, culminating in the worst financial crisis in 80 years.

But only those without commitment to the one true faith—supply-side economics—would be deterred by that history. This isn't about economic growth, or jobs, or anything else. Cutting taxes for the rich is just what Republicans do. It's what keeps them coming back to work, the joyful prospect that our nation's virtuous nobles might find relief from the oppressive burden of taxation that weighs so heavily upon them.

In 2003, as the Bush administration was preparing its second round of tax cuts that showered the administration's beneficence down on the wealthy, Treasury Secretary Paul O'Neill expressed doubts, particularly given the effect the cuts would have on the deficit. But Vice President Dick Cheney quickly set him straight. "We won the midterms," Cheney said. "This is our due." Once again, Republicans have won an election, and though they may not be able to get their act together enough to perform a complex and difficult piece of legislating, if nothing else, they can pass some tax cuts. It is, as always, their due, and they will have it.

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