Don't Believe Republicans: Tax Reform Won't Be Done by Christmas

On Thursday, Congress passed a 2018 budget resolution laying out basic spending priorities for the fiscal year. More importantly, it unlocked the use of reconciliation, the process that allows major bills to be passed with a simple majority in the Senate, for tax reform, the GOP's last shot at a major legislative achievement this year.

President Donald Trump and Republican congressional leaders are touting this vote as a major accomplishment in itself—a sign that they stand united behind and can confidently rush forward on their tax plan. In recent days, they've floated an ambitious timeline for this legislative rush: Release a full and massive tax bill by November 1. Clear it through a committee markup within a week. Get it passed through both chambers by Thanksgiving, then use their remaining days in December—and possibly skip some of their slated time off around the holidays—to reconcile any differences between the House and Senate versions of the bill. That would put the first major tax code overhaul since 1986 on Trump's desk by Christmas, a measure that would likely slash taxes, especially on corporations—the number-one priority for many elected Republicans.

"The momentum is real," said Scott Greenberg, a federal policy expert at the nonpartisan but business-friendly Tax Foundation. "Budget politics are often thorny and complicated, more likely to produce disagreement than comity. The fact that this process has really gone fairly smoothly is the type of thing that does create some feelings of unity among the caucus and even some feeling of, 'Hey guys, maybe we can do this.'" And, Greenberg added, "many Republicans care about this issue more than" anything else, so there is deep commitment to this bum rush.

But this confidence is almost certainly misplaced, and the GOP's ambitious schedule will likely fall apart quickly next month.

As Greenberg points out, "the biggest obstacle of this was never going to be passing a budget," which just opens up Republicans' preferred tactic for addressing tax reform. The sticking point was always going to be figuring out how to unite the Republican caucus on the (still largely unknown) details of a tax bill. Even House Speaker Paul Ryan admitted Wednesday that the heaviest lift is yet to come.

Republicans released their tax reform framework one month ago. In nine pages of large font and wide spacing, they outlined a simple plan to cut corporate tax rates, reduce the number of tax brackets, and offset these shifts by drastically slashing the number of itemized deductions while increasing the baseline deduction individuals can take. But the framework offered few details, like what deductions would get axed and how, or what the new tax brackets would be. None of these questions were, by Republican leaders' own admission, really answered by the time the budget vote rolled around. So the budget vote was more a referendum on whether or not Republicans want to try to cut taxes and close some loopholes. And of course they do.

"It's all well and good to see people agree on the broad outlines or specific components of a tax bill," said Greenberg. "But the… thing that is likely to derail a tax reform process is the details."

One detail alone already nearly derailed the budget resolution vote this week. In recent days, the prospect that the tax bill might eliminate the state and local tax (SALT) deduction, which benefits those living in high-taxed areas, led to a revolt by Republicans from these (mostly blue) states. They made up a big chunk of the 20 Republican representatives who voted against the GOP budget resolution in the House; two more and they could have nixed resolution. Many blue-state Republican representatives still voted for the budget, but made it clear (as did their Senate colleagues, who passed the resolution 51-49) that this did not mean they would vote for the final tax bill.

Although SALT deductions are one of the more contentious details the GOP will have to duke it out over, every single deduction has a constituency willing to fight to the death for it. All a voter group or industry has to do to hold the bill hostage, jamming up the reform process or killing it, is convince three Republican senators or 22 representatives to oppose some aspect of the bill (presuming the Democrats oppose the bill unanimously). There will likely be a heated battle over every page, if not every line, of what is likely to be a 1,000-plus-page bill.

"Everybody wants lower rates," said Jasmine Farrier, a budget process expert. "But closing loopholes to pay for them will be politically contentious, if not explosive."

In their budget resolution, Republicans agreed to abandon their longstanding devotion to a balanced budget by allowing their tax cuts to raise the national deficit by up to $1.5 trillion, making it easier to pass something eventually. That contradicts party promises in January that their 2018 resolution would aim to be balanced. It also sort of skirts around the fact that tax reforms need to be deficit neutral to become permanent under congressional rules. But every concession the GOP makes on a deduction means less money to offset the cost of its tax cuts. Proposed compromises on SALT deductions alone would likely cost them hundreds of billions in offsets. Some conservatives already don't like the $1.5 trillion deficit bump in the budget resolution; Senator Rand Paul and several House Republicans already voted against it at least in part over deficit concerns. So any compromises that increase tax cuts' effect on the deficit will likely trigger more deficit hawk defections.

"While reconciliation makes it potentially easier to find the votes they need in the Senate," said Brookings Institute Congress watcher Molly Reynolds, "I'm not sure how much it speeds up the process of actually getting to an agreement on the substance."

In theory, the experts I've spoken to agree, Republicans could reach internal consensus on how to address all of these concerns. But that wouldn't be easy at the best of times. And unfortunately for them, Trump has decided to get involved with the process. In typical Trump fashion, he's sending mixed signals about what deductions should be spared, making promises Congress may not be able to keep, and promoting ideas that the GOP long ago took off the table, like proposing that tax reform fund an infrastructure program.

"Trump has demonstrated repeatedly that he's not well-equipped to help congressional Republicans bridge internal divides on policy," said Reynolds. "Those divisions definitely exist on taxes." Moreover, Republicans have shown a willingness to ignore him on tax reform, seemingly trusting that he'll sign whatever they give him in the end.

Republicans obviously want to pass tax reform in order to get a legislative win before the 2018 elections. But that may not be enough to convince them to mend those divisions. Most Republicans are not as vulnerable in 2018 as the popular rhetoric would have one think. And it's fairly clear that they'd suffer more at the polls if they passed a bill that seemed to help the wealthy while hurting or ignoring the middle class. Recent polling shows that the vast majority of voters disapprove of what they've seen of the plan thus far. And ultimately, Farrier told me, it'll be the plan's effect on individual constituencies, not its overall effect or value for the party's national image, that influences most of the votes.

As Greenberg notes, we can't be sure how these forces will mix and fall out until Republicans release their bill next week. Based on the compromises they open with, and how they negotiate the remaining sticking points, we'll get a sense of its viability over the first couple weeks of November. But given all of the hurdles the GOP has yet to clear, and the contention we've seen over SALT deductions alone, there's a solid chance that their current timeline will fall apart, leaving them with no big 2017 wins.

This schedule disintegration only grows more likely when one considers all the other issues Congress has to resolve, at least in in theory, by year's end: funding the government, resolving the fate of DREAMers, and potentially stabilizing the individual insurance markets, to name a few. Republicans seem to hope they can focus solely on tax reform. But, Greenberg points out, it's only taken so long to get to tax reform because these other issues distracted them earlier in the year. "There is no reason to believe that suddenly the rest of the world is going to be calmer over the next month to give the Republicans breathing room to solve this," he said.

It's almost certain that tax reform is not going to come quickly, if it comes at all. "Republicans will essentially not give this up until they are really forced to," said Greenberg. "Maybe as late as September 2018," when their reconciliation powers expire, "you could still see people trying to make something happen."

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