The Republican Congress, under President Trump, hasn’t accomplished much. But that will have to change if Republicans want to be competitive in the 2018 midterm elections. And if there’s anything they ought to be able to do by then, it’s cut taxes.
Trump, with typical moxie, has promised “massive” tax cuts. They haven’t happened yet because Republicans in Congress decided, perhaps mistakenly, to make repealing the Affordable Care Act their top priority. That has led to a stalemate in the Senate, where Republicans can’t even generate enough support among their own party to pass a bill. It now seems more likely than not the whole effort to kill Obamacare, as the ACA is known, will fail.
Some analysts think that could derail tax cuts too, because killing the ACA was supposed to free federal dollars that would be needed to offset big tax cuts later. But Republicans can still cut taxes without that money—and may find that’s their only choice. “They need to prove to their core constituency there’s a reason they elected Republicans,” says Tom Block, Washington policy strategist for investing firm Fundstrat. “Tax cuts are very much alive.”
Congress actually has a lot of work to do—on a limited schedule—before they can get to tax cuts. As embarrassing as it would be for Republicans, the best outcome on health care may be the failure to pass a bill repealing Obamacare, which would clear the whole steaming issue from the legislative agenda. It would also spare Republicans a lot of blowback were they to pass what has become one of the most unpopular pieces of legislation in decades. The Senate might still salvage a bill after Congress returns from a recess the week of July 11. But even then, pressure will be on to finish up the whole matter soon. “It seems unlikely that the Senate will debate health legislation after July,” Goldman Sachs told clients in a recent note. “So whether it passes or whether it fails, health legislation seems unlikely to delay tax legislation much further.”
Tackling the debt ceiling and budget
If health care goes away, the next priorities for Congress are raising the debt ceiling, so the Treasury can borrow more money, and passing a budget for the government’s fiscal year, which starts Oct. 1. Those will both be contentious issues generating plenty of headlines. But odds are good the Republicans who control Congress will have deals in place, in time.
That would leave the fall for negotiating a tax-cut bill. Similar efforts in the past have taken years, but Congress might decide modest tax cuts are preferable to deep, complex reforms, simply because they require less work and can pass more easily. And they might be able to make faster progress on tax cuts than on just about any other issue. “If there’s a core issue uniting Republicans, it’s tax cuts,” says Block. “They could come up with a bill that the full spectrum [of Republicans] could agree on.
There’s no real starting point yet for a tax bill, except a House plan that includes a large “border adjustment tax” that retailers and consumer groups hate, and has little chance of ever passing. But House, Senate and White House officials are reportedly meeting quietly to draft a new bill that could survive in both chambers, and might be modest enough to keep annual deficits from spiking. It might cut the corporate tax rate from 35% to 28%, for example. Trump wants to slash it all the way to 15%, but 28% might end up an acceptable compromise that lets the GOP pass something quickly and declare a much-needed victory.
The smaller the cut, of course, the smaller the impact on the economy and the less relief it will bring to voters. But it would still let Trump claim he did something he promised to do. And if it helps suppress memories of the Republicans’ disastrous foray into health care, that would be a fringe benefit.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman