Will tax reform be the GOP’s ACA?
Will the tax reform effort be the GOP’s version of Obamacare? I don’t know, and neither does anyone else. We have little idea what the final legislation will look like and, even if we did, it’s hard to predict its overall effect.
But there are some similarities already, starting with the ugliness of the process.
For years, Republicans mocked Rep. Nancy Pelosi (D-San Francisco) — and other Democrats — for dismissing the need to read the text of the Affordable Care Act before passing it. This time around, Republicans have insisted that we must pass tax reform to know what’s in it, and Democrats have denounced the sausage-making.
The more important similarity lies in the fact that both parties pursued long-term ideological goals in the face of public opposition.
President Obama gave dozens of speeches in favor of the Affordable Care Act and yet it was never popular with voters before passage or after — at least not until Donald Trump was elected, which just shows you how policy preferences can take a backseat to partisanship.
In both instances, the respective parties made a bet that voters would reward their efforts in the long term. During the Obama years, the Democrats’ bet didn’t pay off. They lost control of both houses of Congress, at least in large part because of Obamacare, and one could certainly argue that the issue helped Trump in 2016.
Republicans are betting that the middle-class tax cuts combined with an expected boost in economic growth from the cut in the corporate tax rate will result in a political windfall.
Contrary to a lot of hysterical punditry, partisan rhetoric and sloppy reporting, there’s a plausible case that this could happen. House Speaker Paul Ryan’s initial repeated claims that “everybody” will get a tax cut was an overstatement, but he’s on sounder footing when he notes that the average taxpayer in each bracket will get one. But some people won’t. Indeed, some wealthy people in particular could get screwed. The Wall Street Journal reports that a few high-income taxpayers could — under the Senate GOP version — actually see a marginal tax rate of more than 100%. President Franklin Roosevelt once proposed 100% top tax rate. Who would have predicted that the GOP would inadvertently revive that idea?
More broadly, a lot of upscale taxpayers in blue states could see their tax bills go up if the Republicans cap or eliminate various state and local taxes as well as the home mortgage interest deduction.
Opponents insist that this is a deliberate effort to punish blue states, which have much higher income and property taxes and housing costs. These claims seem somewhat overblown. Ronald Reagan wanted to eliminate the state and local tax deduction at a time when the red-blue divide was less meaningful.
Moreover, tax reformers, including many on the left, have wanted to get rid of, or reform, the home mortgage interest deduction for decades, particularly for second homes. Why should the federal government subsidize affluent people buying bigger homes, never mind country houses?
Also, as my National Review colleague Ramesh Ponnuru notes, the House version seeks to get rid of the alternative minimum tax, which disproportionately hurts taxpayers in blue states. If partisan vengeance were a higher priority than policy, they wouldn’t kill it. Then again, the Senate version keeps it, so who knows?
That’s just it. What makes all of this so unpredictable — and so similar to Obamacare — is that economic analysis is of secondary importance.
It’s unlikely that most of the 35% of Republicans who support the tax effort are doing so out of pure self-interest. Rather, many want President Trump — who ran against big corporations — to have a win. Likewise, Democrats insisting that GOP tax reform amounts to “Armageddon” (Pelosi’s term) are surely driven more by partisan myopia than careful study of the tax tables.
The GOP plan may end up being a win in economic terms. Whether it’s a political win for the Republican Party will probably depend on political factors not found on a spreadsheet.