After Health Care Failure GOP Targets Taxes

It would be difficult to overstate the importance of passing tax reform for both the Trump White House and congressional Republicans.

With the unified framework now released, initial signs are positive.
Nearly every Republican in Washington who spoke out about the proposal was favorable.

This includes rank-and-file members, the Republican leadership, committee chairs. Even the House Freedom Caucus endorsed it.

The reform plan must now be written as legislation and survive multiple committees and floor consideration in two legislative bodies within the limitations of the budget reconciliation process.

The bill aims to reduce the corporate tax rate to at least 20 percent (President Trump prefers 15 percent), cut the tax on repatriated profits one time to bring the estimated $2 trillion to $3 trillion in overseas investment back to the U.S. and allow for 100 percent expensing for five years.

As Trump adviser Larry Kudlow recently told me for my “Mack on Politics” podcast, the goal is to “make America competitive again.”

On the corporate side, this effort should stop the trend of corporate inversions, cause wages to rise and stimulate medium- and long-term capital investment.

For individuals the plan creates only three tax brackets: 12 percent, 25 percent and 35 percent. It doubles the standard deduction from $12,000 to $24,000, which is a significant tax cut for lower- and middle-class Americans.

The plan also removes all tax deductions except the mortgage interest deduction and the charitable contribution deduction. The marriage penalty and the estate tax are repealed.

This would dramatically simplify the tax code and broaden the base, which allows rates to be lowered across the board, allowing millions of Americans to keep more of what they earn.

There will be hurdles.

Politically, Democrats are asking why the lowest raise is increased from 10 percent to 12 percent, which fails to take into consideration the doubling of the standard deduction, which more than accounts for the marginal rate increase.

Legislators in high-tax states will complain about ending the state and local sales tax deduction. This could be a real threat in both the House and Senate.

Supply-siders will want the tax cut to be made permanent, to give confidence and certainty to employers, individuals and to the financial markets. This may be difficult to do through reconciliation.

Another important consideration is whether the tax cuts will be made retroactive for the entire 2017 tax year. Perhaps this can happen on the rate-reduction side but not apply to the deductions since taxpayers operated for an entire tax year believing those deductions would be in place.

It’s been a difficult and frustrating 2017 for congressional Republicans, and with three months left, they must finish this year strong.
The Trump White House is well equipped to provide air support and political cover for members who want to support tax reform.

They have already been far more aggressive building a coalition, earning media and offering explanations and responses on tax reform than they were on health care. President Trump has an excellent base of knowledge on the specifics of tax reform, and he is highly motivated on this issue.

Tax reform unifies Republicans in a way that health care policy does not.
The failure of health care reform makes the passage of tax reform even more necessary.

Passing tax reform will require focus, determination, urgency and unity.
If Americans have more money in their pockets, if economic growth can continue to increase to above 3 percent annually, if hiring increases and wages grow, it will create a virtuous cycle for the Trump White House and congressional Republicans.

As Haley Barbour is fond of saying, “In politics, good gets better, bad gets worse.”

This tax reform effort needs a full-court press from Republicans at all levels of government.

Failure is not an option.

• Matt Mackowiak is the president of Austin, Texas, and Washington, D.C.-based Potomac Strategy Group, a Republican consultant, a Bush administration and Bush-Cheney re-election campaign veteran and former press secretary to two U.S. senators. His national politics podcast, “Mack on Politics,” may be found on iTunes, Google Play, Stitcher and on the web atMackOnPolitics.com.

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Matt Mackowiak
President
Potomac Strategy Group, LLC

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