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To Pass Tax Reform, the GOP Will Need to Divide and Conquer

In the coming tax debate, Democratic unity will be crucial — but difficult to maintain.

by Robert L. Borosage /
Image: Congressional Democrats call on President Donald Trump to keep his campaign promises to not cut entitlement programs like Social Security and Medicaid.Shawn Thew / EPA

Having failed to repeal Obamacare, Republicans are turning to their true passion: cutting taxes and starving government of funds.

But, given the narrow margins and internal divisions of the Republican’s congressional majorities, particularly in the Senate, Democratic votes may well determine what, if anything, gets passed.

Democrats, their spines stiffened by a ferocious grass-roots mobilization, have demonstrated uncharacteristic unity in the early months of the Trump administration. But tax cuts — and the deep-pocketed lobbyists that push for them — are always hard for politicians to resist. Could this be the issue that divides the left?

Indeed, the three Democratic senators who dined with President Donald Trump this summer suggested just such a crack in party unity is possible.

Senate Democratic Leader Chuck Schumer (D-N.Y.) released a letter in August signed by all but three Democratic senators laying out principles for bipartisan cooperation: no tax breaks for the richest 1 percent; no increased burden on the middle class; tax reform passed by “regular order,” meaning through bipartisan Senate support; and the reforms must not sap the revenue needed to fund the government adequately.

The three Democratic senators who did not sign the letter — Joe Donnelly of Indiana, Heidi Heitkamp of North Dakota and Joe Manchin of West Virginia — are all in the party’s conservative wing. All are also up for re-election in 2018, in states that Trump won handily.

Not surprisingly, they are also the three Democrats whom Trump invited to dinner.

Eighteen House members of the Democratic Party’s more conservative (and shrunken) “Blue Dog” caucus issued their own principles for cooperation, including “regular order,” revenue neutral (paid for by loophole closing or spending cuts), middle class focus and a weak-tea version of Schumer’s “not 1 cent” for the rich proposition. They also embraced the need for corporate tax rate reductions in order to “compete globally.”

The Trump administration’s broad outline scorns these basic Democratic principles. Trump has trumpeted his desire for bipartisan cooperation in passing the “biggest tax cut and reform package in the history of our country,” and Senate Majority Leader Mitch McConnell (R-Ky.) has publicly urged Democratic support. In fact, McConnell and House Speaker Paul Ryan (R-Wis.) are committed to passing a tax cut using arcane reconciliation rules that allow legislation to pass the Senate without Democratic votes.

Republicans have made no real effort to engage Democrats in the drafting process of their bill. Yet a few Democrats could likely be seduced.

To date, Republicans have made no real effort to engage Democrats in the drafting process of their bill. According to analysis provided by the non-partisan Tax Policy Center, the GOP's framework would significantly benefit the very wealthy while middle class families would come away with much more modest gains — roughly $35 a month. Far from revenue neutral, the tax break under the Senate budget would also add $1.5 trillion to the debt in 10 years.

Yet a few Democrats could likely be seduced — particularly on corporate tax cuts.

Trump has called for a massive retroactive tax break for the large corporations that have shielded an estimated $2.5 trillion in profits from taxes by reporting them as earned overseas. Trump claims allowing them to pay a token rate — 8 percent to 10 percent — would “return trillions” that would be invested in America.

Past experience proves this is wrong. But many Democrats — including President Barack Obama when he was in office — have promoted similar ideas.

Legislators in both parties are eager to cut the nominal top corporate tax rate — now 35 percent — and pay for it by closing loopholes that reward “special interests.” But, of course, every loophole has a powerful lobby mobilized to protect it.

One Republican target — ending the deduction for state and local taxes — would chiefly penalize taxpayers in high-tax, largely Democratic states like New York and California.

The Democratic senators from West Virginia, North Dakota and Indiana may not find this objectionable. But Republican legislators from high-tax states will be under immense pressure from their own donors to preserve the break

The initial reactions of the more conservative Democrats to the Republican framework have been negative. Manchin, one of the Trump’s dinner guests, agrees that the “middle class does need a break,” but says the Republican framework “needs some adjustment.” Blue Dog Rep. Jim Costa (D-Calif.) said the administration promised something with “meat on the bone,” but the framework didn’t have it. “I don’t think we saw bones,” chimed in Rep. Brad Schneider (D-Ill.).

It remains to be seen whether Republicans can agree on a tax plan among themselves, much less cut a deal with a few Democratic senators if needed.

It remains to be seen whether Republicans can agree on a tax plan among themselves, much less cut a deal with a few Democratic senators if needed. What’s missing in the debate, however, is that the whole enterprise is wrong-headed.

In fact, tax cuts — particularly for corporations and the rich — are the least effective way to generate jobs. The argument for them is mostly flim-flam.

Meanwhile, inequality has reached obscene levels and corporate profits are at record levels.

Real tax reform would mean corporations and the rich pay more in taxes. This would provide the resources needed for the public investment that would actually create growth, make our economy more competitive and our communities more healthy.

To unify Democrats, much less Republicans, around that position would require a massive citizen mobilization. Poll after poll shows that making the rich and corporations pay their fair share of taxes is among the highest public priorities.

There is no popular demand for tax cuts for the rich or the corporations. But money still talks in Washington and reforms that would hike taxes on the rich and make corporations pay the taxes they owe aren’t even on the table.

Democratic unity has been vital in protecting Americans from Republican efforts to strip millions of health insurance or gut programs for the most vulnerable. In the coming tax debate, that unity will be even more crucial — but far more difficult to maintain.

Robert L. Borosage, founder of the Campaign for America’s Future, is a contributing editor to the Nation Magazine and writes widely on economics and politics.

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