(THIS ARTICLE IS COURTESY OF THE WASHINGTON POST)
THE MORNING PLUM:
Amid the final push to pass the Senate tax plan, which is at a make-or-break moment today, Republicans have now hatched two separate schemes, each designed to win over a different bloc of undecided senators. But the two maneuvers could contradict each other — and the contradiction would neatly reveal the big scam at the heart of this whole enterprise.
Several deficit-hawk senators, such as Bob Corker (R-Tenn.) and Jeff Flake (R-Ariz.), are demanding that some kind of “trigger” be added to the bill, which would raise taxes later if the plan’s tax cuts end up adding to the deficit. The bill would boost the deficit by $1.4 trillion in the short term. Some Republicans have argued that the spectacular growth unleashed by the plan would offset that, but Corker and company (and many economists) are skeptical; hence the demand for a tax-hike trigger. As of now, how this trigger would work, and whose taxes would go up, are unspecified.
At the same time, Senate Republicans are currently looking at ways to make the bill more generous to owners of “pass-through” businesses, to win over holdouts Ron Johnson of Wisconsin and Steve Daines of Montana. Research has shown that most pass-through income goes to the top 1 percent: As the New York Times put it, to win them over, Republicans are “increasingly tilting” their plan “to benefit wealthy Americans.”
But here’s the rub of the matter: As one tax analyst tells me, if Republicans make the plan more generous to the wealthy by doing more for pass-throughs (to win over some senators), this would also add to the deficit (which should drive away the others). And this leads us right back to the con at the heart of this whole affair.
The center of the Senate GOP tax plan is a large permanent cut to the tax rate paid by corporations. These would themselves overwhelmingly benefit the wealthy, because the vast majority of their benefits would go to shareholders and capital. But Republicans face two challenges. The first is to sell this primarily as a middle-class tax cut, so voters accept it. They do this by front-loading a bunch of preferences for the middle class along with cuts to individual rates across the board. The second challenge is to do this while simultaneously making the case that the plan would not balloon the deficit, to hold on to deficit-hawk senators and because if it raises the deficit in the long term, procedural it can’t pass by simple majority with only Republican votes. Republicans address this problem by ending all the middle-class preferences and individual rate cuts after 2025.
But the problem is that the second imperative undermines the first. Because the middle-class benefits must be temporary to avoid busting the long-term deficit, analyses have found that in the long run, it would shower enormous long-term benefits on the rich while the benefits to the middle class fade away and taxes go up later for many less-fortunate earners. The whole point of back-loading the losses on to that latter group later is to prevent the permanent corporate tax cuts from ballooning the long-term deficit, allowing a huge permanent tax cut overwhelmingly benefiting the rich to pass with no Democrats.
The two new maneuvers Republicans are now contemplating both typify and exacerbate this core problem. Senators who want the plan to be more generous to pass-throughs saythey want the small businesses in their ranks (there are some) to get equivalent treatment to wealthy corporations. But Joseph Rosenberg, a senior research associate at the Tax Policy Center, tells me that this itself would add to the deficit.
“Changes that would make the pass-through provision more generous would further increase the cost of the bill and the deficit,” Rosenberg emailed me. What’s more, Rosenberg notes that such a change would likely be something the wealthy in particular can take advantage of, because they’d be more inclined and able to reclassify their income as pass-through. As “taxpayers look for opportunities to take advantage of the tax benefit,” Rosenberg says, this would “disproportionately benefit higher-income households.”
For all of this to go through, consider the most likely way it would happen: The deficit hawks would have to accept a plan that on paper does balloon the deficit in the short term, on the basis of triggers that allow them to claim tax hikes will kick in if growth doesn’t offset that. (Either these triggers remain unspecified, or Republicans will be declaring that some specific groups may be hit with tax hikes later.) Meanwhile, to make conservatives happy, the plan would have to include still more benefits for the rich under the guise of mainly helping small businesses.
All that could very well happen. But if so, it will just underscore how many different ruses are necessary to paper over the basic con at the center of it all: Republicans are giving the wealthy a large permanent tax cut while selling it as mainly a large middle-class tax cut andas something that won’t bust the deficit.
Update: Reporter Steven Dennis points out that Johnson and Daines are proposing to pay for their idea of making the bill more generous to pass-throughs by doing away with some deductions enjoyed by corporations.
But Seth Hanlon, a tax analyst with the Center for American Progress, tells me that we should not presume this offset will prove to be real until we actually see it in the bill and it’s subjected to serious scrutiny. If not, Republicans would have to find the money to pay for this elsewhere, or it would increase the deficit.
Beyond this, the broader point still holds: The underlying problem here has always been that Republicans are trying to push a permanent tax cut that would overwhelmingly benefit the rich, while selling it as primarily a middle-class tax cut and claiming it won’t bust the deficit.
* TAX CHANGES WON’T DO MUCH FOR MIDDLE CLASS: Even as the plan is being changed in ways that will further reward the wealthy, the New York Times reports that Senate GOP leaders aren’t that interested in helping another group of taxpayers:
Mike Lee of Utah and Marco Rubio of Florida, for example, appear to be making little progress in persuading party leaders to expand access to the child tax credit for low-income families, by allowing the credit to be refundable against payroll tax liability. Such a move would allow working parents who do not currently face income tax liability to still benefit from the expanded credit envisioned in the bill.
Per usual, it appears the changes are geared toward winning over conservative holdouts, because Republicans who say they want a less regressive bill can be counted on to vote “yes” in the end.