GOP’s Tax Victory Shapes Spending Battles Ahead
Republicans passed their long-sought plan to cut taxes, growing the deficit in the process. Now they want to target entitlement programs and the size of government.
Congress passed the most significant tax overhaul since 1986 on Wednesday, slashing over a trillion dollars primarily to the benefit of corporations and wealthy Americans—and setting up a series of dramatic fights in the coming years over the size and role of government.
While Republicans initially wanted the bill to pay for itself, it will actually lose nearly $1.5 trillion in the next decade, according to congressional scorekeeper the Joint Committee on Taxation. Instead, Republicans will look to reduce the government’s debt through cutting spending.
The only question is when. In 2018, both parties will ramp up their midterm campaigns, weakening the hearts of all but the most ambitious conservatives who want to reduce the size of government through cutting programs, including those for the poor and elderly. Some Republicans would prefer to oversee a ho-hum year, keeping the government running and perhaps embarking on an infrastructure bill that President Trump and Democrats have expressed interest in crafting.
“The real question is, do we collectively have the courage to actually approach the ‘third rail’ in politics?” Republican Rep. Tom Cole said.
After taking over the House, Senate, and White House for the first time in a decade, some Republicans believe the time to act is now. And after passing a bill that further deepens the debt, Republicans could have set themselves up for a stronger argument to reduce spending.
House Speaker Paul Ryan has said that he’d like to pass a welfare-reform package next year. “Let’s change our welfare laws so we push and pull people out of poverty, into the workforce,” he said on Dec. 14. On ABC Wednesday, Ryan said the House will be focused on that goal, as well as other reforms to Medicare and Medicaid, in the spring of 2018.
In an interview, Grover Norquist, the conservative antitax crusader, said he expects Congress to take up measures in April to reform programs that administer food stamps and temporary financial assistance for needy families.
“The Republicans held tight on taxes against the press saying, ‘This is awful,’” Norquist said. “They’ll do the same thing on welfare reform. And going into November, the party that cuts your taxes and reforms welfare will do fine.”
Democrats disagree, pointing to polls that show the tax bill, the president, and the Republican Party as widely unpopular.
“How can Republicans defend this?” Senate Minority Leader Chuck Schumer asked Tuesday. “The only people who want it are their very wealthy paymasters, who seem to run the Republican Party these days, and they’re running it into the ground. The longer this bill sees the light of day, the more Americans find to dislike.”
And following Republicans’ disastrous attempt to “repeal and replace” the Affordable Care Act and their successful overhaul of the tax code, some Republicans don’t want to again embark on a purely partisan fight.
“I think there’s zero appetite for dealing with Medicare in a partisan way,” said Republican Sen. Lindsey Graham, who will nonetheless push next year for his Medicaid block-grant bill, which is supported only by members of his party.
Ryan also has yet to convince the Senate Republican leadership on welfare reform. Senate Majority Leader Mitch McConnell has kept his plans for the 2018 agenda close to the vest, and his lieutenants didn’t seem heartened by the speaker’s plans.
“I think that’s awfully ambitious,” Sen. John Cornyn, the No. 2 Republican, told National Journal.
GOP Sen. Roy Blunt said he’d “prefer” to take on a bipartisan infrastructure package next rather than entitlement reform.
Republicans in Congress could have passed a tax bill that didn’t add to the deficit. Instead, they focused on a deal that could add up to $1.5 trillion in federal government debt over a decade, and even more should a future Congress extend tax cuts for individuals that expire in 2025. “We have every intent of making those permanent,” Ryan said on Tuesday.
The central thrust of the GOP tax plan is a cut of the corporate rate from 35 percent to 21 percent, and an effort to bring U.S. tax policy in line with its overseas competitors. The bill offers a series of new breaks for businesses, such as the ability to fully deduct the cost of certain business purchases for five years, with a phase-out afterwards, and a new structure for so-called pass-through entities like limited-liability companies, which can now deduct 20 percent of their income.
The benefits are less certain on the individual side. The bill would reduce taxes on average for all income groups between 2018 and 2025, but higher-income households would receive a larger portion of the tax cuts as a percentage of their after-tax income, according to a Dec. 18 analysisfrom the nonpartisan Tax Policy Center. By 2027, 53 percent of taxpayers would pay more compared to now as individual tax breaks expire.
The bill also weakens the insurance marketplaces set up by the Affordable Care Act, repealing the tax that encourages people to buy health insurance with the help of government subsidies. Millions of people will drop their coverage in the coming years, raising the costs of premiums for the sicker people left in the marketplace, according to the Congressional Budget Office.
Numerous analyses have found that the tax plan would increase the deficit. The nonpartisan Joint Committee on Taxation analysis of the bill said it would increase the deficit by up to $1.46 trillion over a decade. The conservative-leaning Tax Foundation found that the bill would increase the deficit by $448 billion over the same period, even when accounting for increased economic growth.
Other groups paint a much bleaker picture. The Committee for a Responsible Federal Budget, a budget-hawk group, said that the expiring individual tax breaks hide between $570 billion and $775 billion in additional costs over a decade, pushing the total price tag up to $2.2 trillion on a static basis when factoring in the cost of extending those breaks.
The House passed the bill, 224 to 201. Only 12 Republicans, mostly members from high-tax states like New York and New Jersey who opposed the state and local tax provisions, voted against the measure. The Senate passed the bill early Wednesday morning on a party-line vote.
For weeks, Sen. Bob Corker had been one of the few Republicans willing to vote against the tax bill because it could increase the debt burden on the next generation. But on Dec. 15, Corker came out in favor of the bill. He later said that he had talked to Speaker Ryan earlier that morning about the need to curb the growth of entitlement programs.
“There’s no question that we’ve got to find a way to deal with it,” Corker said.