Lots of people are drawing comparisons between Trump’s inability to pass ObamaCare reform and the difficulties he is facing in getting approval of his tax cut. But the tax cut is fundamentally different and should have a better fate.
Repealing ObamaCare was about words. The tax cut is about numbers.
It is hard to compromise on the provisions of Obamacare but easy to split the difference where numbers are all that is involved. If Trump, House Speaker Ryan and Senator Majority Leader McConnell are sufficiently flexible, it should be possible to tweak the very good initial proposal to get the votes to pass it.
Blue state Republicans (35 of them in the House) pose the biggest problem. In the Senate, 21 Republicans come from states that have income taxes of six percent or more, but the rates tend to be lower than in the big blue states.
But the point is that numbers are fungible, negotiable. If Trump chooses to scale back the corporate tax cut to 25% (still a ten point reduction) or to raise the proposed new rate on pass through income to 25% (now proposed at 20% but still a big cut from 39.6% under current law), he will have lots of revenue to play with in appeasing swing blue state Republicans.
Trump could use that money to restore some of the deductibility of state and local taxes.
As it is, the proposal skillfully does not eliminate property tax deductibility but limits it to taxes above $10,000. That could go higher. Or state income taxes could still be deductible on incomes of less than $75,000. Such changes borrow from Obama’s strategy: raise taxes but only on upper income people, limiting the anger they cause.
It is only if Trump or the blue state Republicans dig in their heels and insist on principle rather than just numbers, that it could get sticky.
In the Senate, certain members might pose problems, particularly Maine’s Susan Collins who hails from a state with a top bracket of 10%, the second-highest in the nation. Senators Ernst and Grassley from Iowa have grounds to complain since their state’s income tax caps at 9%. Every other state with a Republican senator comes in at 7% or less.
Politically, the decision to leave the top rate at 39.6% is sheer genius in that it makes it really impossible for Democrats to characterize it as a tax cut for the rich. The doubling of the standard deduction and the increase in the child tax credit from $1,000 to $1,600 both make this a tax cut for the working class.
If the GOP plays the tax cut game with sufficient savvy and political dexterity, it should pass.
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