Republicans Are Playing Tax-Cut Politics Again

(Bloomberg Opinion) -- Congressional Republicans are worried that their huge 2017 tax cut isn't resonating with voters. So they're doubling down by pushing for another big tax cut in September. It's much more a political gambit than an economic one.

With the assent of the White House, Republican leaders will propose a permanent extension of the tax cuts for individuals and small businesses, which had been slated to expire after 2025. This cutoff was done purposely last year to hold down the projected cost of the legislation — estimated at $1.9 trillion or more in reduced revenues over a decade. The tax cuts for corporations, and some affecting wealthier individuals, were made permanent from the start because GOP leaders knew it would be harder politically to come back and extend them.

The new legislation, still being assembled, will be packaged as an effort to help the middle class and to create new retirement incentives.

That's a ruse.

Any new retirement saving accounts would be in the form of tax breaks that primarily would benefit upper-income individuals. Moreover, numerous studies have suggested that such tax-based incentives mainly subsidize savings that would have occurred anyway.

The individual cuts enacted last year were skewed heavily to the wealthy, so a permanent extension would help the same group. Republicans also are considering making permanent some of the tax gimmicks contained in the bill. These, according to Howard Glickman of the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, have created “a nation of tax-shelter hunters.”

Making the individual cuts permanent would reduce government revenue by about $250 billion in 2027 alone, the Congressional Budget Office has estimated. In the ensuing decade, it would add trillions more to federal deficits. The national debt, which candidate Donald Trump vowed to eliminate, is expected to soar to $33 trillion by 2027 from around $21 trillion today.

Deficit hawks are horrified. “The country is drowning in red ink,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “We certainly shouldn't pile on new tax cuts that would only expand our near-term economic sugar high.” The Concord Coalition, another bipartisan group that opposes “unsustainable fiscal policies,” says the planned measure “flies in the face of fiscal responsibility.”

Republicans expected the tax cut to be a major political asset for them this year, offsetting the advantage Democrats enjoy as advocates of comprehensive health-care legislation. But that has not been the case, and it's Democrats who have turned the tax cut to their advantage by criticizing it for favoring corporations and the wealthy.

The odds of actually passing the extension of the tax cuts are not high. Last November, the original tax-cut measure passed the House of Representatives by a narrow margin, 227 to 205. The extension would also make permanent the sharp limit on deductions of state and local taxes from federal returns, an unpopular provision in high-tax states like California and New York. There may be enough Republicans facing election challenges in those venues, along with a handful of genuine deficit hawks, to make it tough to win a majority, as little Democratic support is likely.

Crucially, the extension would also require 60 votes in the Senate because unlike the original tax bill it can't be considered under a special process known as reconciliation. That would mean that nine Senate Democrats would have to join all 51 Republicans, a high bar.

Republicans might try to break off a few provisions to pass separately. But for them, legislative success isn't really the point. Mainly they're just looking to create a political talking point for scared Republicans in the November election.

To contact the editor responsible for this story: Jonathan Landman at jlandman4@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Albert R. Hunt is a Bloomberg Opinion columnist covering politics and policy. He was the executive editor of Bloomberg News, before which he was a reporter, bureau chief and executive Washington editor at the Wall Street Journal.