After Health Plan Failure, Tax Reform Next Up

Expectations are high, especially in corporate board rooms and on Wall Street, for Trump-backed tax cuts, but it’s not clear where he gets the votes for his plan that promises to benefit the well off while ballooning the deficit.

Expectations are high, especially in corporate board rooms and on Wall Street, for Trump-backed tax cuts, but it’s not clear where he gets the votes for his plan that promises to benefit the well off while ballooning the deficit.

Tax reform appears to be next up in Congress following the failed repeal of Obamacare, but messing with taxation promises to be highly more complex and politically complicated.

Congressional Republicans appear to be in the middle of a civil war and corporate America seems restive after their expectations of a tax bonanza fueled a Wall Street run-up since the 2016 election of Donald Trump.

Some insiders in the President Trump camp wish Republicans had tackled tax reform before health care, but that’s easy to say before a tax reform bill is hatched. In health care, you can pretty much identify the teams. When it comes to tax reform, it’s pretty much every man for himself.

The GOP’s American Health Care Act languished because it threatened to cast millions of Americans into the uninsured pool, while dooming state budgets in red and blue states because of steep Medicaid cuts. The battle lines for tax reform are more nuanced and personal. Everybody expects a slice of the tax cut, and that’s hard to deliver.

Add to that the procedural hurdles Congress must navigate to cut taxes while not adding to the deficit, otherwise facing a tax reform-killing Senate filibuster. The Trump tax reform plan, as sketched during the presidential campaign, would reportedly add trillions of dollars to the federal deficit, something even more conservative GOP members of Congress may oppose. One idea to offset the deficit from tax cuts is imposed a border adjustment tax, which would essentially transfer a tax cut to consumers buying imported products.

If the AHCA could be scuttled by a thousand local news stories of people in distress losing their health insurance, imagine what can be written in local newspapers about the plight of average joes eking out a living while the 1 percent gets a huge tax break. It doesn’t conform to the populist narrative, or the American sense of fair play. Cutting the federal government down to size should benefit little guys, not just the big guys.

This storyline was a subplot of the Obamacare repeal story, though it never got the biggest media play. But $1.2 trillion in federal spending on health care minus $880 billion in tax cuts to wealthier Americans equals only a $339 billion deficit reduction over 10 years just didn’t light many fires. Put that same equation forward in tax reform and you just might get a political explosion.

Few disputed the need to make changes to the Affordable Care Act, just as there could be broad agreement on some tax changes. But the Trump administration and congressional Republicans haven’t teed up either topic as a bipartisan exercise. After the flameout on the AHCA, Democrats have less political incentive to team up with Republicans on any major legislation that could become a wedge issue in the 2018 mid-term elections.

Despite the obstacles, Republicans may be able to ram through a major tax cut on grounds it will stimulate economic growth. But the spending cuts that may coincide with a deficit-raising tax cut could put a damper on state and local spending, creating a drag on that economic growth. And the Federal Reserve, already convinced that the economy is running a near full bore, may try to put on the brakes by raising interest rates in the name of preventing inflation. All that could diminish whatever stimulative effect tax cuts might have.

The first 100 days of a presidency goes by a blink of the eye. April 29 will mark the 100th day of the Trump presidency, and it is now only a mere month away. There is little reason to expect in the next month the Russian interference in the US election investigation will conclude, Trump’s approval rating will suddenly surge or the AHCA fiasco will be forgotten. 

Tax reform may look like the next shining sea to conquer, but may instead only be yet another political mirage.