President Donald Trump is expected to begin fleshing out his plans for a tax cuts next week, and the administration is far into negotiations with Republican leaders in Congress on the effort. The president has offered few specifics so far, other than a desire for his tax cut to be the biggest ever (yuge, you might say), and that is precisely why he is going to need to work with the Democrats rather than going it alone with members of his own party.
Republicans control both chambers of Congress, and they can push through tax cuts on a simple majority basis in both the House and Senate — in theory. The House is no problem, but the Senate, with the requirement of 60 votes to overcome a filibuster, is much harder. Tax cuts can be passed through the budget process known as “reconciliation” that does not allow for filibusters, but they must meet certain conditions — most pertinently that they do not add to the budget deficit over 10 years. Cutting the corporate tax rate from 35 percent to 15 percent, which Treasury Secretary Steven Mnuchin reaffirmed on Tuesday is the administration’s goal, along with other promises like dropping the number of individual income tax brackets from seven to three, lowering income tax rates, eliminating the estate tax and more, means blowing a big hole in the budget. The Tax Policy Center, a joint effort of the Urban Institute and the Brookings Institution, estimates that the tax cuts Mr. Trump outlined in broad detail this spring would increase the deficit by $7.2 trillion over the first decade. Dynamic scoring, a technique for crunching the numbers preferred by Republicans who believe such cuts will spur economic growth, doesn’t meaningfully change that picture.
Even the loophole-closing and deduction-limiting administration officials are hinting at would only cut the red ink in half — and it would involve going after sacred cows like the mortgage interest deduction and deductions for state and local taxes. (Both of those would have an outsized impact on states that have relatively high state and local tax rates and housing costs.) Getting the rest of the way without embarrassingly optimistic economic projections would require massive spending cuts, the burden of which would fall disproportionately on lower income households, while the benefits of the cuts would disproportionately go to the wealthy. Some conservatives in Congress might not mind that, but the divide in the GOP over efforts to repeal the Affordable Care Act suggests that there remain a crucial few moderate Senate Republicans who are unwilling to stomach that sort of thing.
If President Trump remains determined to reform the tax code and can’t do so with Republican votes alone, what options does he have? Hints are already starting to emerge from the president’s meeting Tuesday with a handful of Democratic senators from red states and Mnuchin’s concession that the administration might be willing to seek a bipartisan deal if a Republican-only strategy is unworkable. Plenty of Republicans on Capitol Hill, already angry at the president for cutting a deal with House Minority Leader Nancy Pelosi and Senate Minority Leader Chuck Schumer on keeping the government funded and increasing the debt ceiling, are apoplectic about that idea, with some suggesting they would block any such measure from advancing.
Meanwhile, Schumer and Sen. Ron Wyden, an Oregon Democrat, have united most of their caucus behind a demand that any tax reform not only go through the normal procedure, rather than reconciliation, but that it also not benefit the top 1 percent of taxpayers or add to the deficit. Pelosi and members of her caucus in the House have taken a similar stance, and as such, Democrats are specifically criticizing plans to repeal the estate tax and the possibility of eliminating deductions widely used by the middle class.
They’re not saying no to tax cuts, just demanding that they be paid for and actually benefit people who need the help. That may not fly with most Republicans in Congress, but given Trump’s apostasy on certain subjects, such as his willingness to close tax loopholes that benefit hedge fund managers (though Mnuchin on Tuesday floated the possibility that other kinds of firms might still be able to use it), he may be willing to cut a deal.
If we’ve learned anything about Trump so far, it’s that he’s much more interested in being able to claim victory than he is about the details of policy. There’s a path for him to do that on tax reform if he is willing to work with the center of both parties. He can notch a win, and so can the vast majority of the American people.