Congressional Republicans have convinced themselves that they need to pass a tax bill ASAP. Having failed to repeal and replace Obamacare and made little if any progress on either a border wall or a major infrastructure program—President Trump’s two other stated objectives for the year—they don’t want to head into the midterm-election year empty-handed.
There’s no question that the Republican majority in the House is teetering on the edge, and in the Senate it’s unclear whether the GOP will be scoring a net gain, suffering a loss, or coming away with a wash next year. The outcome of Alabama’s Senate special election on Dec. 12 is of obvious importance. The common thread in both the House and the Senate is that while the political environment looks decidedly hostile to Republicans, the political geography gives a decided advantage to the GOP. The Republicans know they’ll be running into political headwinds because of Trump. The critical question is whether they will be gusts or hurricane force.
The economic arguments for the competing Republican House and Senate tax plans are less than compelling. The economy grew at very healthy rates of 3.2 and 3.1 percent in the second and third quarters of this year. As of Friday, the Federal Reserve Bank of New York’s “Nowcast” model was forecasting an increase in the gross domestic product for the current quarter at 3.67 percent. This is considerably more optimistic than the early November Blue Chip Economic Indicators survey of 53 top economists, who pegged fourth-quarter growth at 2.7 percent, which is respectable. The stock-market indices are regularly reporting record highs, consumer confidence is near or at record-high levels, and unemployment for October stood at just 4.1 percent—pretty much full employment. Just how much a tax cut can boost an already healthy economy is debatable. Some economists worry that it could result in a “sugar high,” an artificial and temporary jolt.
Then there is the impact on the deficit. The proposals would result in an estimated $1.5 trillion more in national debt over the next 10 years. In a survey of 38 experts by the University of Chicago’s Initiative on Global Markets, 37 said that the tax bill would cause the debt to grow “substantially” faster than the economy, and the 38th admitted later that he had initially misread the question and concurred with the others. This reminds me of the old adage that we have two political parties, the tax-and-spend party (Democrats) and the borrow-and-spend party (Republicans)—in this case the spending coming in the form of tax cuts.
Popular attitudes toward the legislation are debatable as well. While carefully worded questions can elicit favorable responses to certain provisions in the bill, most polling shows pluralities or even majorities of Americans opposed to it. People are hearing conflicting arguments about who would benefit most from the measure, but voters are disinclined to give Trump or congressional Republicans the benefit of the doubt.
Regardless of economic analyses and public polling, congressional Republicans face the political imperative of showing voters that they have actually accomplished something this year or risk being swept away by a political wave in 2018. But that raises the question of whether any short-term benefit to Republicans will be worth the potential longer-term cost. Whether they like it or not, if Republicans pass a tax bill they will “own” any additional increases in the annual budget deficit and the accruing national debt, unless they’re right in their insistence that tax cuts will create economic activity, job growth, and higher revenues.
Part of the problem for Republicans is that their support for this bill seems driven not by economic necessity but by electoral politics and a philosophical belief that taxes are inherently bad and should be cut at any possible opportunity. Strong economic growth, a record-high stock market, and strong consumer confidence, accompanied by remarkably low unemployment rates, do not suggest that tax cuts are needed now. These House and Senate bills no longer seem to meet the definition of actual tax reform, something that virtually everyone agrees is necessary. They’re simply about cuts.
Collectively speaking, congressional Republicans have probably climbed too far out on the tax limb to retreat now. They’ve said that they had to pass a tax bill to retain their House majority, with some even using the term “existential” to describe their predicament. Backing off now would mean very publicly surrendering on an issue that they elevated to preeminence. Individual Republican members have to make judgment calls as to whether the political benefits of passing something—anything, really—are enough to offset the costs that seem likely to result.