GOP Working for Good Tax Policy

Member Group : Matt Mackowiak

It is more likely than not that we are heading into a virtuous cycle for the Trump administration and Republicans on Capitol Hill if they seize the moment.

With the House expected to pass their version of tax reform legislation in the next 24 hours, the bicameral legislative process begins with continued urgency and increasingly strong chances for success.

The Senate Finance Committee is aggressively moving its version of the bill for potential Senate floor consideration before Thanksgiving, allowing enough time for a conference committee to work and for both houses to pass one reconciled bill before year’s end.

This timeline matters for two reasons, one that is symbolic and another that is practical.

If President Trump can sign a tax reform bill before year’s end, he will invalidate the talking point that his administration did not have a significant legislative accomplishment in its first year.

More substantively, if he can sign a bill before year’s end, taxpayers can begin to see larger paychecks as soon as January, as the amount withheld from them will decrease, giving them more money to spend or save immediately.

The political benefits of passing tax reform are many:

• Republicans need a legislative victory. They did use the Congressional Review Act in the House to undo regulations that cost the economy billions of dollars. They did pass a sweeping reform of the Veterans Affairs administration. The House has nearly 300 bills awaiting Senate consideration. The Senate did confirm a stellar Supreme Court justice. But this is not nearly enough, and to date no Republican is yet satisfied.

• The White House and Capitol Hill Republicans need something to unify them for tougher battles ahead: the year-end spending fight, the Deferred Action for Childhood Arrivals (DACA) deadline, potential new sanctions against Iran, an infrastructure bill next year and a potential bill to legislate direct subsidies to health insurers to offer low-cost, subsidized plans to low-income Americans. These are all politically fraught and complicated issues that will require Republican unity for success to be possible.

• A stronger economy will improve the political environment. Americans appear increasingly positive about the economy, but sustained economic growth above 3 percent is not assured. Two consecutive quarters of over 3 percent GDP growth is encouraging and significant but could be short-lived. Tax reform will provide an additional boost. Republicans appear to be facing headwinds in next year’s midterms, but an improved economy, with benefits broadly shared, will limit the pessimism and potentially create real optimism.

• The tax reform plan could be a real success. Cutting the corporate tax rate will lead to new capital investment and employee raises. Doubling the standard deduction will double the number of Americans in the zero-rate category. Expanding the child care tax credit will make it easier to start and raise a family while working. A one-time repatriated profits tax rate will bring trillions back from overseas, and when coupled with the lower corporate rate, that money can stay here and be invested into the economy.

The dual goal of the tax reform effort is to provide a significant tax cut for the middle class, while also spurring greater economic growth.

A proposal to repeal the individual mandate tax penalty, which the Senate is including, will add at least $300 billion in revenue to the bill, and may be useful as the conference committee works to reconcile the two versions. It will serve as a middle-class tax cut, as Vice President Mike Pence said today.

Americans for Tax Reform has found that 79 percent of households who were forced to pay the fine earn less than $50,000 annually, and 37 percent of those forced to pay the fine earn less than $25,000 annually.

Perhaps most importantly, the Congressional Budget Office (CBO) has theorized that repealing the individual mandate will cause 16 million Americans to lose health insurance, on the absurd belief that they will choose not to continue coverage if the mandate is not in place. Once the mandate is gone, any new legislative effort to replace Obamacare will no longer be subject to the 16 million coverage loss projection from CBO.

Passing tax reform by year’s end will create a virtuous cycle where incomes and consumer spending rise, capital investment spikes and economic growth increases, which will benefit all taxpayers specifically and all Republicans generally.

Good policy makes good politics.

Matt Mackowiak is the president of Austin, Texas, and Washington, D.C.-based Potomac Strategy Group, a Republican consultant and former press secretary to two U.S. senators. His politics podcast, “Mack on Politics,” is on iTunes and Google Play.

Matt Mackowiak
Potomac Strategy Group, LLC

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