Six weeks ago I wrote here that investors and corporations should not count on Congress passing tax reform legislation this year. Now that the GOP’s “Big Six” has released a somewhat more detailed framework, do the chances look any better? Here are five reasons why the ambitious plan is still a long shot:
- Too Many Democrats. People like to say that no one knows what the Democratic Party stands for. One thing it definitely stands against is big tax cuts for the rich. In August, all but three of the 48 Senate Democrats signed a letter rejecting deficit-financed tax cuts for corporations and the wealthy. The leading message from the Big Six is that the tax plan would provide no benefit for the rich. But pretty much everyone else acknowledges that the nation’s wealthiest would get the lion’s share of the benefits.
- Too Few Republicans. Almost all congressional Republicans are on board with the Trump tax plan, but not quite everyone. On October 1, Tennessee Sen. Bob Corker told “Meet the Press” host Chuck Todd, “But if it looks like to me, Chuck, we're adding one penny to the deficit, I am not going to be for it, OK? "I'm sorry. It is the greatest threat to our nation. The greatest threat to our nation.” Corker could be just the start of Republican worries. Sen. John McCain voted against the healthcare repeal bills this summer and the Bush tax cuts 10 years ago. Sen. Rand Paul tweeted his disappointment in the plan as not ambitious enough. “If you lose Corker and McCain, the margin for Senate error is zero,” wrote political analyst Chuck Krueger.
- Too Little Time. The last time Congress passed major tax reform legislation, more than 30 years ago, it took nearly 18 months from when the Reagan White House first introduced its proposal to when it was ultimately signed into law. As of the end of September, the House only has 36 more days when they are scheduled to be in session before the end of the year, while the Senate only has 44 more days. And it is not as if tax reform is the only item on their agenda.
- Too Many Special Interests. The major way the tax reform plan would offset a portion of the massive tax cuts is by repealing the deduction for state and local taxes. But just a day after announcing the plan, objections from House Republicans from high-tax states like New York and New Jersey had GOP leaders exploring ways to accommodate those lawmakers. “The fight over the state and local deduction highlights the backlash every decision in the tax debate will bring,” the Wall Street Journal warned.
- Too Many Trillion Dollars. The budget resolution the Senate approved unlocked the reconciliation procedure that will allow the tax bill to pass with only 51 votes. The resolution includes a provision effectively limiting any potential tax cut to $1.5 trillion over 10 years, not including the calculated impact on economic growth. The nonpartisan Tax Policy Center puts revenue lost from the blueprint at $2.4 trillion over the first decade, excluding any impact from growth. That is a lot of trillions to overcome. The administration argues that the plan can accelerate economic growth far beyond its current pace for years to come and, in doing so, generate sufficient federal tax revenue to cover the shortfall. Most economists have called that wishful thinking.
The tax reform ball is now in the House and the Senate, where the Senate’s top Republican on tax policy, Utah’s Orrin Hatch, warned that the Big Six would not dictate the direction of expected tax reform legislation.
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