Trump’s first big win could hurt in the end
WASHINGTON— Donald Trump has finally earned the first major legislative victory of his presidency. It may hurt him more than help. Politically, that is. Because it’ll help him financially.
On Wednesday, the Republicancontrolled U.S. Congress approved their sprawling tax bill. It’s complicated, but it boils down to this: a steep tax cut for corporations and the wealthy, substantially smaller cuts for middle-income and lowincome people and a real possibility that average people will actually face a tax increase in 10 years.
The bill, a $1.5-trillion (U.S.) tax cut in all, can fairly be described as both the fulfilment of Trump’s campaign promises and a betrayal of those promises.
Trump ran on a pledge to slash taxes for individuals and businesses. He just delivered. But he also ran on a pledge to eliminate the debt. He just added more than $1 trillion to it. And he ran, famously, on a pledge to focus relentlessly on the country’s “forgotten” regular folks. He did not come even close.
Trump described the bill Wednesday as “an incredible Christmas gift for hardworking Americans.” As of today, however, most Americans see it as a gift to himself and people like him.
The passage of the bill — 224-201in the House, 51-48 in the Senate — represents the culmination of a longheld dream of House Speaker Paul Ryan and many of his Republican colleagues. But it has always been unpopular. In almost every poll, a majority of voters say the bill would primarily benefit the wealthy and would not reduce their own taxes at all.
Republican lawmakers predicted the bill would become beloved as voters begin to see the jobs, growth and personal-income gains they say it will produce. And after their basedepressing failure to deliver on their promise to replace Obamacare, they said they needed to get “tax reform” done to avoid a turnout catastrophe in next year’s congressional elections.
“I think minds are going to change and I think people are going to change their view on this,” Ryan said Wednesday.
Democrats, however, were not only incensed by the substance of the bill — they called it a “scam” and a “heist” perpetrated by Republican lawmakers on behalf of themselves and their donors — but gleeful about its political consequences. They said this Republican “success” would make the 2018 mid-term elections worse for Republicans, not better.
The bill leaves Democrats with an embarrassment of attack-ad riches. For example, it leaves in place a loophole that benefits hedge-fund titans while eliminating or reducing breaks beloved by average homeowners.
“This bill rewards people for inheriting wealth and for already having money, and punishes people still trying to climb the mountain. That’s why people are so angry. Lots of members (of ) Congress are actually too out of touch to understand the rage. But they will next year,” Hawaii Democratic Sen. Brian Schatz said on Twitter.
For Trump, the passage of the bill is a boon to his tarnished reputation as a dealmaker, the first proof that he can get big things done through legislation. Until now, his unfounded claims to “historic” success have relied on acts, such as regulation cuts, he could mostly undertake himself.
But the bill has further undermined his image in other respects — demonstrating again to many voters, including some of his own, that he is more like the self-enriching politicians he derided in 2016 than the working-class champion he claimed to be.
Compounding public suspicions about the bill is Trump’s continued refusal to release his own tax returns. While he has insisted, with no evidence at all, that the bill will cost him a “fortune,” the bill includes numerous provisions that will benefit him, such as a cut to the top individual rate, a cut to the rate paid by the “pass-through” entities his company uses and an increase to the amount of an “estate” a deceased person can pass on tax-free to his or her heirs.
Independent analysts have found that more than three-quarters of taxpayers will get a tax cut next year. But the wealthy will get much bigger cuts than the less-wealthy.
According to the Tax Policy Center, people earning less than $25,000 will get an average cut of $60, just 0.4 per cent of their after-tax income, and people earning between $49,000 and $86,000 will get $900, or 1.6 per cent of after-tax income. People in the top 1 per cent, making more than $733,000, will get $51,000, or 3.1 per cent.
The bill’s individual tax cuts, moreover, are expected to turn into tax hikes for most taxpayers by 2027. Unlike the bill’s corporate tax cuts, the individual cuts will expire unless a future Congress decides to renew them.
The centrepiece of the bill is a dramatic permanent cut to the corporate tax rate, from 35 per cent to 21 per cent. That takes the headline U.S. rate from the highest among major developed countries to the neighbourhood of the world average — eliminating the advantage held by other countries, including Canada.
University of Calgary fellow Jack Mintz has warned that the new law will make Canada significantly less competitive unless Canadian governments respond with their own changes. Mary Webb, director of economic and fiscal policy at Scotiabank Economics, is less concerned, saying the tax rates are merely one factor in companies’ decision-making; Canada, she said, remains competitive.
Web said she expects a “modest” boost to the U.S. economy from the bill and therefore a smaller positive impact on the Canadian economy. On the whole, she said the bill is so complex that it is too soon to precisely estimate what will happen.
“It would be difficult to look at all the consequences for Canada, because I don’t think we know all the consequences yet for the States,” she said.
The bill, the most sweeping U.S. tax overhaul in three decades, includes numerous changes to the tax code. It will have a significant impact not only on the economy but on health care: included in the bill is a repeal of the Obamacare “individual mandate” that requires Americans to obtain health insurance or face a financial penalty.
The end of the mandate will result in 13 million fewer people having health insurance in 2027, according to the independent Congressional Budget Office, and produce a 10-percent increase in insurance premiums. Speaking before a cabinet meeting on Wednesday, Trump boasted that he had “essentially repealed Obamacare.”
Even if the bill becomes less unpopular in most of the country, there are still risks to Republicans’ congressional majorities. Provisions in the bill disproportionately harm Democratic-leaning states such as California and New York — parts of which tend to elect Republicans to Congress.
Some other Republicans have been unabashedly gleeful about imposing pain on blue bastions. But if voters in even a smattering of red islands decide to punish their representatives for this bill in 2018, the party’s triumph today may be the cause of its disaster in 11 months.