Tax Analysts Blog

Will Republicans Ever Be Able to Focus on Tax Reform?

Posted on Aug 14, 2017

Tax reform is hard work, despite what President Trump said during the House’s attempt to repeal Obamacare. It requires filling in a lot of details and anticipating opposition from business and interest groups that don’t like the idea of winners and losers. Despite talking about tax reform as a centerpiece of their agenda since 2010, the GOP really hasn’t done much of the work to build support within their caucus and the public at large for a real plan.

And it isn’t clear when they’ll be able to do that. To say that the Trump administration has dealt with distractions would be the world’s biggest understatement. Those distractions have taken their toll on congressional Republicans, who have shown a remarkable inability to multitask. The Russia investigations, the scandals over tweets, Trump’s erratic foreign policy, and the turmoil in the White House (which still might not be over, if reports of Steve Bannon’s imminent dismissal are to be believed) all have sapped Republican legislative momentum. Numerous high-profile senators are deeply engaged in the Russian matter, and GOP lawmakers are asked repeatedly about it by the press. (It even came up during the Virginia gubernatorial debate between Republican Ed Gillespie and Democrat Ralph Northam.)

House Speaker Paul Ryan and other committed tax reformers would tell you that Trump’s problems won’t influence their efforts to push a major tax bill in the fall. But it’s clear that they have and will in the future. For one thing, the GOP can’t really engage the public about the need for tax reform while the media refuses to cover anything other than Trump. While support from the business community is important for tax reform (and already largely present), Republicans need individuals (who are voters, after all) to feel that they are benefiting from the legislation as well. The lack of public support was a major factor in the collapse of Republican healthcare efforts.

Trump’s crises also underline the other critical point about the GOP’s lawmaking efforts – their inability to do multiple things at once. While the House was desperately tweaking its healthcare reform bill to get 218 members to vote for it, the Senate was bogged down confirming Trump’s Cabinet. When it came time for the Senate to take up its own version of repeal and replace, it was obvious that Majority Leader Mitch McConnell was starting basically from scratch. 

During the tortuous healthcare reform effort, observers were assured by Republican leaders that work on tax reform was proceeding. But we’ve seen no evidence of this, other than a vague statement by the so-called Big Six saying that the House’s border adjustment tax is dead. The House passed an ACA repeal bill on May 4. There still has been no real outline of tax reform. Instead, members seem focused on the outcry over the failed repeal effort, whether Trump will fire Robert Mueller, and, now, the prospects of a government shutdown or debt default this fall.

The latter highlights the fact that the Republican agenda will never be entirely clear. Congress must deal with the budget and the debt ceiling when it returns from the August recess. It needs to pass a budget to have reconciliation instructions for tax reform, something that is critical because of near universal Democratic opposition. The GOP has a lot to do just to keep the government running, and that doesn’t bode well for its efforts to accomplish something truly difficult (like, say, completely overhauling the nation’s tax system). 

Republicans need to pass a tax bill, even if it is just a 2001-style tax cut. The business community is counting on it. Wall Street is counting on it. Republican donors and voters are counting on it. Failure will likely doom the party in the 2018 midterm elections and put a major dent in the economy (particularly the stock market). However, it’s not clear that the GOP can overcome all the Trump-related distractions buzzing around Washington long enough to get the entire caucus on the same page and start winning the public relations battle with the press.

Read Comments (5)

Edmund DantesAug 14, 2017

Reluctantly, I agree with everything in your post.

The Republicans really fumbled it when they decided to do health care first. Tax reform should have been the number one priority, enacted promptly both to validate the surge in investor optimism and to push the economy toward 3% real growth. That is number required for the GOP to maintain their position in Congress in 2018, that is the only thing they should be thinking about.

Reagan had a tax plan, and it included a half dozen bite-sized pieces that everyone could easily understand. He got to work on it immediately, and the result was ERTA 1981. I've been following this subject in Tax Notes, and I still have no idea what the Republicans really want.

Very disappointing.

I fear that it will take a stock market crash and another recession to motivate Congress into action.

Mike55Aug 14, 2017

I'm also pessimistic we'll get true tax "reform," for all of the reasons you did a good job summarizing. I am however very bullish that we'll get a 2001 style temporary rate cut before the 2018 elections.

Republicans already have enough votes for a temporary rate cut on the individual side, and permanent international only tax reform on the corporate side. The real question is how long Republicans will push for meaningful tax reform before giving up and reverting to this baseline.

The answer is probably a matter of logistics. Low and middle income taxpayers must receive their tax "rebate" checks before the 2018 elections, so there is a limit to how long Republicans can bicker internally. All those checks will take months to process and mail, so I'd guess something will happen this spring at the latest.

Patricia MoonAug 15, 2017

I am sorry to see your list of "who is counting on tax reform" fails to include Americans (and other "U.S. Person's") living outside the United States. The Republicans have included repeal of FATCA and a move to residence-based taxation in their platform. The problems of this population have been documented and much discussed, particularly over the last five years, including articles published by Tax Analysts. Inclusion would help recognition of these issues which are primarily misunderstood by the (resident) American public and often mis-characterized in the press.
The lack of due diligence by the U.S. to advise non-resident Americans of their tax and reporting requirements with the resulting "amnesty" programs and the FATCA witch-hunt cannot have gone unnoticed by the compliance industry?

Edmund DantesAug 23, 2017

Totally off topic, but did Chris Bergin retire? I read about his replacement, but no details on him. Once upon a time Chris was an active and engaging blogger here. I miss his postings, and hope all is well.

Virginie JambonSep 5, 2017

The U.S. national debt is approaching 20 trillion dollars, and the Republicans still think tax cuts are a good idea, due to their continued embrace of Lafferian idiocy, which the past 36 years have proven to be utter nonsense. The only tax reform should be an increase in the top bracket to 50% on incomes over $250,000 until the national debt is brought down to a more sustainable level, combined with FICA reform that shifts the cost of Social Security and Medicare to high earners, and cuts taxes for the working poor (who will actually spend the money, instead of parking it in real estate investment trusts). Yeah, I know, rich people are the "job creators". Yuk yuk. Spare me. Republicans will almost certainly cut taxes for the wealthy, make the debt problem worse, probably start another war somewhere, then the next time anyone with a "D" in front of their name occupies the White House, Fox News viewers will immediately start screaming about the debt again. I agree with the repeal of FATCA, to the extent that people living overseas shouldn't have to file with the IRS, let alone pay taxes. But they should also not be conflated with people residing in the U.S. who park money in overseas bank accounts in the hope of dodging taxes. Those folks need to be required to report their foreign accounts. FATCA is a classic example of legislation with good intentions that produced horrific, unintended results, and Obama and the Democrats own it.

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