Tax Reform Passes First Hurdle, But Trouble Lies Ahead

By David Malcolm

The biggest push to reform the US tax code gathered momentum as the Senate passed a budget resolution on Friday. The resolution protects Trump’s tax reform bill from a Democratic filibuster and means that the bill only needs a simple majority in Congress. This is a huge relief to Republicans after no Democrats voted for the resolution and are likely to vote down tax reform.

The budget resolution did look like it might falter, but this time, the GOP has made some progress. Trump is ecstatic that he can bypass the Democrats. However, the war over tax reform is still ongoing and there are still significant challenges ahead.

Trump’s controversies form one such problem. The recent controversy over Trump’s calls to the widows and families of the Green Berets killed in Niger has blown into a major scandal. It has exposed a weakness in Trump, played against a perceived strength in his respect for American values and the military. More importantly, it has distracted the media from his real agenda which is still important, even if he still cries ‘Fake News’. Perception matters and getting people onboard with your plans, even one as dull as tax reform, is crucial. Judging by the sound of the newsrooms, the narratives are already set in place. No amount of distraction or deflect may change that.

The biggest problem for the GOP leadership is that, despite their full control of Congress, their party is divided. The slim majority in the Senate means that three or four Senators switching their votes will derail the bill, just like Obamacare’s repeal. The bill itself is still unclear at certain points and, as with anything involving money, the question who wins or loses weight heavy on some minds.
Some Republicans think that the reforms go too far, others think it doesn’t go far enough. Some are concerned that, despite claims to the contrary, the tax reform will indeed benefit billionaires. Others wonder where the money is going to come from and how far it will improve the economy.

The specifics leave plenty of room for disagreement and division. For example, most Republicans agree that corporate tax should go down from 35% but no one can agree on a final number. There is also concern over the fact that resolution would combine tax cuts with $203 billion in spending cuts to mandatory programs, including food assistance for the poor. The question over how the sacred 401K is affected will also be critical to the bill’s survival.

Tax reform is also competing for space on the legislative calendar and is a high-pressure point for the GOP. This is where’s Trump lack of political experience and impulsivity really hurts its chances. After refusing to certify the nuclear deal with Iran and gutting Obamacare, he has loaded more legislative problems on his party. None of them have palatable solutions to them and leave them with awkward questions to answer next year. Bipartisan deals might help but Trump blowing hot and cold leaves many on edge and prevents them from committing themselves.

Tax reform has to compete for space with Iran, the debt ceiling, Obamacare, and DACA amongst others. The likelihood of tax reform getting pushed to next year means that the pressure is on the GOP to pass it soon. Trump wants a victory before the year ends, even threatening Christmas break and planning to tack infrastructure to the bill.

In the end, Republicans might celebrate passing the budget resolution because they think it makes things easier. In truth, it’s the only easy part they have. Dissent over the bill is slowly growing in Congress and amongst the population. Given that tax reform has evaded Congress since 1986, it’s not surprising that the issue has a long way to go. Trump can be as circumspect as he wants, carefully fostering votes, but his divide and conquer tactics from before work against him here. He might not need Democratic support but he does need Republican consensus. There’s precious little of that here now.

The clock is ticking for Trump. He hopes that tax reform will be a big victory for him, but his own actions before this cast doubt on the result. With disagreements between House and Senate, tax reform might not get passed until 2018. If it gets passed at all, that is.

I’m a historian based in the UK who likes jumping from one thought to next. I love to learn new things and explore other ideas.

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