Divisions on tax cuts and the state and local tax deduction could be the real killer.
Donald Trump routinely breaks Ronald Reagan’s Eleventh Commandment.
Thou shall speak ill of fellow Republicans… if your name is Donald Trump. And the worshippers at the Church of the Holy GOP regard him as saint rather than a sinner for doing so.
The president mocks “Liddle Bob Corker” as “incompetent.” His reaction to Senator Jeff Flake’s decision to not seek reelection proved more measured if don’t-let-the-door-hit-you-on-the-way-out in tone. He said the Arizona Republican enjoyed “zero chance” of reelection and “did the right thing for himself.”
Little Marco, Lyin’ Ted, and Low Energy Jeb can all attest the president’s skill as a puncher and his will to not serve as someone’s punching bag.
Even tax cuts, the closest thing to an Apostles Creed sworn by all Republicans, now creates divisions. Strangely, neither the ambitious reduction of the federal corporate rate from 35 percent to 15 percent nor the proposal to kill the death tax serves, for the Republican caucus, as the provision provoking the most opposition. The elimination of the state and local tax (SALT) deduction certainly comes close.
The Senate opted to eliminate the SALT deduction on a 52-47 vote last Thursday. The House likely considers the question this week.
Republican leaders wish to end that deduction as a means of simplifying the code and recouping revenues lost amid the cuts. But GOP congressmen from high-tax states threaten to vote “no” unless leadership keeps the deduction. They hope for a compromise.
The Washington Post reports that four Republican congressmen from the Empire and Garden States plan to vote “no” if leadership jettisons the SALT deduction. Given the top income tax rate approaching nine percent in both states, one grasps the importance of the issue for representatives from New York and New Jersey.
But one also sees how a deduction that provides relief to taxpayers enables tax-and-spend liberals at the state level by effectively subsidizing them at the expense of federal revenue.
Places that tax more benefit more from the program. Aside from closing a loophole, the elimination of the deduction works, in its own way, to discourage, or at least to not encourage, onerous taxation at the state level.
Enthusiasts for bigger government recognize this. Michael Leachman and Iris J. Lav wrote last week for the Center on Budget and Policy Priorities that
the SALT deduction helps state and local governments fund public services that provide widely shared benefits. That’s because, with this deduction, higher-income filers are more willing to support state and local taxes. Repealing the deduction would almost certainly make it harder for states and localities — many of which already face serious budget strains — to raise sufficient revenues in the coming years to fund K-12 and higher education, health care, and other services. To balance their budgets with insufficient revenue, state policymakers would likely make cuts in such services that would be widely felt.
But the federal government, now under the weight of more than $20 trillion in debt, also struggles to keep expenditures in line with revenues. SALT deductions cost the federal government $96 billion this fiscal year. Over the next decade, the deductions reduce revenue by an estimated $1.3 trillion.
Senator Charles Schumer, hailing from a tax-happy locale and hoping to empower states to raise taxes, opposes the provision. Some of his arguments possess merit. Corporations, he notes, continue to benefit from the SALT deduction. Why not individuals if corporations? And something about taxing already-taxed income strikes so many people beyond the Senate minority leader as wrong.
Though tax cutters may gleefully drop a provision that effectively acts as a tax hike, doing so to gain the few Republican votes in the Northeast and California risks losing the deficit hawks everywhere else. Leadership walks a fine line.
Ultimately, Republicans vote not just on the country’s future here, but on their party’s future as well.
With a Fox News survey showing a 50-35 lead for Democrats on a generic ballot that one year ago displayed an even 45-45 split, Republicans need to homer after whiffing on health care. One can’t hang one’s hat on an invisible wall, and brandishing the political scalps of members of the same party comes across, at some point, as an offensive tackle unleashing a sack dance after crushing the quarterback.
The country, experiencing average or below GDP growth (vis-à-vis postwar, 20th-century America) in all but one year this century, really needs this bill. The Republican Party, a divided lot looking (not particularly hard) for unity, really, really needs this bill.
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.