The Senate Budget Committee gave its imprimatur Tuesday to the Trump tax plan on a 12-11 party-line vote.
More so than that win, winning over Senators Bob Corker (R-Tenn.) and Ron Johnson (R-Wisc.) represented the day’s big triumph. Trump predicted Corker a “nay,” but, as though to spite him, the retiring Tennessean voted “yea.” Johnson, troubled by a corporate tax cut not matched for the small businesses organized as “pass throughs” under the tax code, had earlier indicated his opposition. He voted for the legislation, like Corker, in committee.
Majority Leader Mitch McConnell compared passing the bill with a popular but frustrating puzzle. “Think of sitting there with a Rubik’s Cube,” he explained, “trying to get to 50.”
And just like the Rubik’s Cube, when achieving color uniformity on one side makes a scrambled mess of another, cajoling one senator to vote in favor can leave another senator in opposition.
Take Senators Jerry Moran (R.-Kan.) and Susan Collins (R-Maine). The former wants spending discipline. The latter seeks to block spending cuts.
“The issue of tax cuts would be easier if you actually had faith that Congress would hold the line on spending,” Moran noted this week. “It’s two components. It’s how much revenue you take in and how much money you continue to spend.”
Collins, on the other hand, hopes to block the proposed repeal of the individual mandate, which, according to a Congressional Budget Office estimate, saves the treasury $338 billion over ten years.
Winning Collins’s vote alienates Moran and winning Moran’s vote means alienating Collins. Rubik’s Cube is right.
And speaking of right, the horse trading required to attract votes might result in the passage of the wrong bill. Already, the Senate has whittled down the cut on top individual rates from the 35 percent Trump requested to 38.5 percent, which makes for an anemic cut from the current 39.5 percent rate. Expediency may require alterations. But some changes seem desirable in their own right.
Here are three alterations the president might consider to improve his bill and enhance chances of its passage:
• Like Johnson, Senator Steve Daines (R-Mont.) objects to the bill’s reduction in the corporate rate from 35 percent to 20 percent not corresponding to a similar cut for small businesses organized for tax purposes as pass throughs. “I want to see changes to the tax cut bull that ensure main street businesses are not put at a competitive disadvantage against large corporations,” Daines explained. Your correspondents have argued here in favor of the federal government recognizing all businesses as C-Corporations for tax purposes provided that the bill eliminate double taxation. This solves Daines’s problem. But many roads go in the direction Daines and Johnson want to travel, and providing a break to pass throughs along with C-Corporations should be a destination where Trump wants to go, too.
• Trump can win over deficit hawks and energize his “Make America Great Again” base by insisting that American companies pay the U.S. corporate rate no matter where they store their cash. Taxing all corporate income outside of the U.S. at the 20 percent rate, with credit for the foreign tax, necessarily increases funds available for U.S. investment rather than exiles that money overseas as a tax avoidance measure. Microsoft, an American company, keeps 97 percent of its cash abroad, according to Bloomberg. They do this because Congress effectively gives them a tax break if they keep their money outside of the United States. The president’s plan includes a weak-sauce fix. He needs something stronger that repatriates this money, reduces the deficit, and perhaps attracts a Democrat vote or two by imposing a uniform tax on American companies no matter where those companies hold their money.
• Abolishing the estate tax, otherwise known as the moron tax (“Only morons pay the estate tax,” Gary Cohn taught us), looks unlikely. But coupling its abolition with a 20 percent tax on appreciated but as yet untaxed assets makes the treasury dollars, so perhaps it makes sense. Reforming estate and family trusts to pay capital gains on transfers or from estates will raise revenue for the U.S. treasury and encourage charitable giving as the only way to reduce capital gains taxes. The current approach cathartically punishes the rich on paper but frustratingly in practice provides very little in revenue. Trump can do better.
Alas, the Rubik’s Cube contains a mere 54 squares. The U.S. Senate houses 100 of them.
And, unfortunately, they prove every bit as vexatious as those red and blue and green and yellow and orange and white squares.