Tax Cut

Trump Tax Cut Already In Trouble

By Stan Collender

Don't believe the unrestrained enthusiasm coming from the White House and congressional leaders. The tax cut they announced last Wednesday is already in trouble and isn't going to be enacted quickly.

Of course the party line coming from the Trump administration, House Speaker Paul Ryan (R-WI) and Senate Majority Leader Mitch McConnell (R-KY) is that enacting this will be a slam dunk. They have to demonstrate absolute confidence that the tax plan will be signed into law by the end of this year.

But as soon as you look beyond their political campaign-like exhortations, you have to conclude that Trump, Ryan and McConnell are being unrealistically optimistic about about the prospects for this proposal.

In fact, by last Friday, that is, less than two full days after it was released, it was clear the tax cut was in deep trouble.

One of the key reasons is that no one has yet made a convincing case that this tax cut is needed to help the economy. With unemployment already low and GDP growth now approaching 3 percent, the kind of demand for a federal government-provided stimulus that would exist if there were a downturn or recession just doesn't exist.

This lack of an economic imperative is extremely important for how the proposed tax cut will be treated politically. Trump and his allies on Capital Hill seem to be assuming that skeptical Republicans and at least some Democrats will agree to a bill that hurts voters in their district or state because he says a tax cut is needed to goose the economy. With that pretext removed, the parochial reelection concerns of each representative and senator rather than an amorphous appeal to "the economy" will be the primary consideration and even Republican support cannot be taken for granted.

That's already happened. GOP representatives and senators from states that would be hurt by eliminating the deduction for state and local taxes have already signaled that they are not on board with the Trump plan.

Without an obvious economic imperative for a tax cut, Trump has had to make the tantalizing but almost irresponsibly wild claim that the economy will grow by six percent or more. Very few (as in virtually no) economists think this is possible, especially because the plan appears to make no provision for how much and how fast the Federal Reserve would raise interest rates if economic growth even started to approach the level Trump is promising.

This claim of rapid and steep GDP growth is also critical for the White House's insistence that, in the face of all credible evidence to the contrary, its tax cut will not increase the budget deficit or national debt. But by the end of last week, others with far more veracity on the federal budget than the Trump administration were reporting that the tax cut would spike the deficit and debt by between $2.2 trillion  and $2.4 trillion over the next 10 years. Even the budget resolution produced last week by the GOP-controlled Senate Budget Committee to accelerate the debate on the Trump tax cut assumed it would increase the deficit by $1.5 trillion.

A deficit and debt increase of this magnitude proposed by Democrats would have immediately sent congressional Republicans into a tweet storm frenzy and been the prime topic on Fox News this weekend. But because it came from Trump, the impact of f the deficit/debt increase will be far more subtle; a few GOP representatives and senators who are opposed to the tax cut for other reasons will use it to justify their opposition.

That will be a big problem for the Republican House and Senate leadership. While they say they expect that some Democrats will support the tax cut, the decision to exclude them from the planning process -- the Big Six consisted of four congressional Republicans and two members of the Trump administration -- means that it is anything but bipartisan. Because of that, and given the lack of any economic imperative and the substantive problems with the proposed tax cut (especially that it would harm taxpayers in blue states), House and Senate Democrats are far less likely to support the plan in its current incarnation than Trump, Ryan and McConnell are hoping.

That will make every GOP vote critical to passing the Trump tax cut and, as of a last Friday, significantly large groups of Republicans in both houses of Congress had already made it clear that they could not vote for the plan as drafted. Without any Democrats supporting the bill, McConnell will only be able to lose two Republican senators and still pass the bill. As of last Friday, there were more than two who were expressing doubts about their support.

On top of everything else, the end-of-this-year deadline Trump has set for enacting this tax cut is absolutely phony: There is nothing magical or procedurally required about December 31, 2017. More than anything else, Trump's dictate that this be done quickly is just his latest rendition of Victor Herbert's song "I Want What I Want When I Want It."

Congress won't feel any need to sing along with him.