When John McCain dramatically killed the senate’s attempts at health care reform, Mitch McConnell declared pretty forcefully they were “moving on.” Many have speculated the next issue they will take on is some form of tax reform and White House economic advisor Larry Cohen basically outright confirmed as much in the days following the collapse of healthcare negotiations.
Donald Trump is excited to move on and clearly thinks tax reform will be an easier push than health care has been, the people around him seem to agree, but there isn’t much of a reason to believe tax reform will be any easier than healthcare. In fact, given tax reform’s prominence in conservative circles, almost every serious Republican official comes to the table with their own pet tax reform policy.
In a sense that is the exact opposite of healthcare reform where there was not an abundance of ideas. Healthcare was largely left to Paul Ryan in the House and a small group of a little over a dozen senators in the senate. There were other reform packages, such as the Cassidy-Collins plan, but for the most part debate was singularly focused on the plans pushed by Ryan and the senate’s healthcare group. It’s probably that worth noting that Susan Collins was one of the loudest Republican critics of the healthcare bill and while she backed away from her own reform package, it’s probably worth noting that one of the loudest dissenters was also one of the few legislators with an alternative route for health care reform.
This was again on display when the Cassidy-Collins plan sort of fell through and became the Cassidy-Graham plan, a more moderate plan to reform Obamacare in the form of significant cuts and moving medicare/medicaid to block grants allotted to the states. It was a policy that could get some support from more moderates, specifically those that killed the last proposal, Susan Collins, Lisa Murkowski, and John McCain. The problem there though is such a plan alienates conservative members like Ted Cruz and Rand Paul, it also makes it more difficult to push the proposal through the house.
It’s not at all clear this same dynamic won’t be at play during an upcoming tax reform push.
In fact, it’s a problem that is almost guaranteed to plague the tax reform debate. Just looking at some of the tax reform proposals floating round the Republican Party there are some pretty clear differences that will need to be worked through. Without the addition of Donald Trump the Republican primary was ripe for a significant policy debate that will instead be had during the push for reform. Ted Cruz, John Kasich, and Donald Trump all offered distinct policy proposals that all relied on their own personal assumptions of the political events of the day. Squaring the differences of opinion between the various branches of the Republican Party will be incredibly difficult.
For example Ted Cruz’s tax policy which he dubbed a “flat tax” but was largely based on a nearly 20% “Consumption tax” which is a nice way to dress up a value added tax such as the those used in Europe. Specifically Cruz’s plan looked to reduce the personal income tax rate to 10% across all incomes, getting rid of the seven tax brackets currently utilized. It would also get rid of corporate income tax, payroll tax, and the taxes used to fund medicare and medicaid. All of that revenue supposedly accounted for by increased growth and a 16% “consumption tax.”
The entire plan is based on a lot of political assumptions, such as the desire or ability to cut payroll taxes for social security, medicare, or medicaid. It’s not at all clear people want to cut those programs in order to cut taxes. Make on mistake, Cruz’s plan would leave a significant budget gap to be filled with the aforementioned cuts.According to the Brooking’s Institute Tax Policy Center this plan would cut taxes by “$8.6 trillion (3.6 percent of gross domestic product) over the next ten years.” All of which would come together to “cut taxes at most income levels, although the highest-income households would benefit the most and the poor the least.”
Compare that to some other tax reform ideas floating around the Republican Party and there are some pretty significant differences in the plans themselves and the political assumptions they are based on.
Take John Kasich’s tax reform proposals as an example, those reforms do not go nearly as far as Ted Cruz’s plan and the plan is based on totally different assessments of the American political landscape. Instead of totally repealing individual income taxes Kasich’s plan would drop the top rate from 39.6 to 28 percent and would reduce the number of tax brackets from seven to three, instead of Cruz’s proposed flat tax. It’s also almost double what Cruz’s tax plan proposes as far as individual tax rate. Furthermore Cruz gets rid of the corporate tax entirely while Kasich’s plan would reduce the corporate tax rate to 25%, down from 35%.
Those are pretty significant differences that would need to be resolved and when compared to Donald Trump’s proposals it clearly shows the massive differences in opinion within the party.
Trump’s plan calls for 4 tax brackets which for both ends of the income ladder would constitute a significant cut. Anyone making under 50,000 a year would pay 0 taxes while those making over $150,000 annually would be charged 25%. Not too far off the Kasich’s proposal. A 15% corporate tax rate
In some ways Trump’s plan represents a nice middle ground, but in an uncompromising Washington with a massive gulf between stakeholders, it seems hard to see those concessions bringing both the Cruz and the Collins wings of the party to the table.
One thing every Republican proposal can agree on is getting rid of the estate tax and they all are full of vague language about cutting back on “excessive regulation” and “over reach at the IRS.” Still, the divide within the party is fairly stark. On one end are moderate Republicans who will almost certainly gravitate towards a Kasich like proposal. On the other are those like Ted Cruz or Rand Paul who advocate a flat tax and a fundamental reworking of American taxes. Somewhere in the middle there is Donald Trump’s plan that might end up a lot like the Cassidy-Graham healthcare plan, a nice compromise on paper that has too much to dislike for everyone in the real world.
Perhaps everyone’s pet project on tax reform will come together nicely and there will be clear compromise within an otherwise very fractious party. More likely though the fundamental divide between the conservative and more moderate wings of the party will be too wide. It’s not clear yet how it will go or if the healthcare debate is truly dead, but one thing is for certain. The tax reform debate will be far more contentious than anyone is letting on at the moment.
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