Trump’s Red Line Is Holding Up Tax Cuts

 

 

(New York Times)

 

Republicans suddenly have a fiscal headache in their tax bill. They can thank President Trump for it.

The cost of the Senate’s bill came in at $1 trillion over 10 years, after factoring in economic growth, according to an analysis released on Thursday by the Joint Committee on Taxation. That has alarmed Senator Bob Corker, Republican of Tennessee, an influential lawmaker who has long warned against bloating the federal deficit.

He is demanding that lawmakers come up with hundreds of billions of dollars to bring down that cost, most likely through future tax increases. With Republicans holding a narrow majority of just 52 seats, they can afford only two defections if they want to pass the bill without Democrat support and other senators besides Mr. Corker who are also undecided.

Lawmakers are now considering raising corporate and individual taxes down the road, a largely unpalatable solution for Republicans, particularly those in the House, who could object to the measure once lawmakers try to reconcile both versions of the tax bill.

One simple way to find the money that Mr. Corker is requesting would be to reduce the corporate tax rate, not to 20 percent, but closer to 25 percent; the difference between the rates is a bit under $500 billion over 10 years, said Scott Greenberg of the independent Tax Foundation. For a similar price, senators could choose to phase in, over a decade, their cut to 20 percent from 35 percent, a move favored by conservative economists like Alex Brill of the American Enterprise Institute.

But Mr. Trump has drawn what the White House calls a red line in negotiations at a rate of 20 percent, putting Republicans in something of a box.

Spurred by Mr. Trump, many conservative groups are insisting on a 20 percent rate, which they say is critical to making the United States more competitive with other developing nations that have relatively low corporate rates. In a letter on Thursday, several groups in the conservative Koch network warned that a rate any higher than that would undermine the economic growth goals of the bill.

The Koch network was instrumental in defeating a proposal from House Republican leaders earlier this year — known as border adjustment — that would have raised additional revenue by taxing imports. Eliminating that provision was a central focus of the network’s semiannual donor retreat in Colorado over the summer; officials there warned that it would drag on economic growth.

Republican leaders never found a sufficient replacement for the revenue that border adjustment was projected to raise to offset tax cuts. To the surprise of many lobbyists, they followed Mr. Trump’s lead and did not budge from the corporate rate of 20 percent. On Wednesday, Senators Marco Rubio of Florida and Mike Lee of Utah began calling for 22 percent, but they want that money to pay for an expanded child tax credit, not to offset losses.

The decisions made by Mr. Trump and Republican leaders leave just a few ways to meet Mr. Corker’s demands, including phasing out some tax cuts in the later years of the bill or making the cuts less generous.

It is possible that those negotiations will end with Mr. Trump’s 20 percent rate unscathed. It is possible that they will load the bill with provisions that economists warn could curb the growth effects of the cuts. There is a small chance that they could sink the bill altogether, if they do not succeed.

In recent days, Mr. Trump has drawn praise from Republicans for rousing senators’ support for the tax bill. He has also consistently prodded Congress to move quickly on tax issues, particularly since late summer, and congressional aides say the bill would not be advancing at such a dizzying pace if not for his pressure. It remains to be seen whether he will intervene on this matter or whether he will leave Republicans to work it out among themselves.