Charlottesville Did Not Impact Tax Reform’s Prospects

On the surface, Stan Collender of Forbes is on solid ground when he argues that the Republicans will not succeed in enacting a comprehensive tax reform because the president is too weak. Collender presents some of the obvious obstacles to reform, including that changing the tax code creates strong constituencies of losers who will be furious. He notes correctly the narrowness of the Republicans’ majority, the frayed and tattered relationships that a growing number of Republican senators have with Trump, and the lack of needed credibility, focus and leadership from the White House. These things would all make passing tax reform difficult even if there weren’t more pressing obstacles.

But there are more pressing obstacles, which means that Collender is basically misinforming his audience about what is going on. It’s not that Trump is weak and discredited that is the main hurdle in the path of tax reform. It’s the process that was chosen for enacting it.

As with the effort to repeal Obamacare, the plan for doing tax reform involves using the budget reconciliation process. In both cases, it’s a three-part process. It begins with passing a budget resolution for the coming fiscal year. In that budget resolution, they need to include special budget directives or instructions.

To start the reconciliation process, the House and Senate must agree on a budget resolution that includes “reconciliation directives” for specified committees. Under the Congressional Budget Act, the House and Senate are supposed to adopt a budget resolution each year to establish an overall budget plan and set guidelines for action on spending and revenue.

These budget directives are supposed to go to the relevant committees in both houses of Congress. In the case of the Affordable Care Act, those committees were House Ways & Means and Energy and Commerce, and Senate Finance and Health, Education, Labor, and Pensions (HELP). Those committees received instructions specifying targets for changes in spending and revenues that they needed to provide by marking up legislation. Reconciliation directives do not dictate any specific legislative changes or language that a committee must adopt, but they do provide numerical targets that have to be met. Things didn’t work out the way they were supposed to in the Obamacare repeal effort because the committees didn’t do their work. That’s why Senate Majority Leader Mitch McConnell’s team was writing and tweaking the language up to the very last moment. Yet, he still had to abide by the targets set forth in the budget resolution directives.

I hope none of this is overly complicated or hard to understand. The same process needs to happen to make tax reform work. First, the House and Senate must agree to a new budget. If they can’t agree to a new budget, then they won’t have any budget resolution directives. And if they don’t have any budget resolution directives, the committees will have no spending and revenue targets to reach on tax reform and nothing to reconcile in a reconciliation bill. Without anything to reconcile, there can’t be a reconciliation bill at all, and that means that they can’t use that process to avoid a filibuster. McConnell couldn’t even step in the way he attempted to with Obamacare repeal and do the committees’ work for them. Without passing a budget, the Republicans will need 60 votes in the Senate for any tax reform, which means that they won’t get tax reform that looks anything like what they’ve promised or what they want.

Thus, the problem doesn’t even get to worrying about winners and losers in any proposed reform unless the budget is passed first. The Republicans couldn’t pass a budget last year which is why they were able to use the empty shell of last year’s budget bill as a vehicle for trying to repeal the Affordable Care Act. Of course, they succeeded in getting that process started by passing last year’s budget this past January during the lame duck session of Congress. Their problem came on the back end when it came time to actually reconcile the budget in early August. But that was last year’s budget and it didn’t contain budget directives for this year’s budget.

So, first they need to pass a new budget with new directives aimed specifically at tax reform. If they somehow succeed at doing that, then they need to write legislation that can get at least 50 votes in the Senate. Senator John McCain, who is suffering from brain cancer, may or may not be generally available to travel to Washington DC to cast votes, so the Republicans may only be able to afford one defection. That would mean that every Republicans senator would have an effective veto on any provision of the proposed tax reform that they don’t like. Given that any tax reform would negatively impact some states more than others, it’s almost impossible to write anything that would satisfy every Republican senator (save one).

Under these circumstances and constraints, it’s doubtful that even LBJ at the zenith of his power could succeed. Trump’s personal failings and difficulties don’t need to enter into our consideration of the problem.

Trump could, of course, attempt some kind of pivot in search of any kind of win. He could aim for something more modest like a simple tax cut rather than a comprehensive reform. He could abandon the effort to pass something comprehensive on a strictly party line vote and go in search of Democratic authorship and sponsorship of a tax reform. But he still would need a budget resolution to pass through Congress for other reasons. Without one, Congress has no guidance for doing their appropriations bills and the likely result will be some kind of government shutdown followed by a bill that keeps the government operating with Obama Era baseline numbers and priorities.

Can the Republicans pass a budget this year when they failed to do so last year? That, to me, is the first and primary problem that Trump faces. It may not be possible.

Relatedly, Trump needs the Republicans in Congress to vote to raise the borrowing authority of the government. That also may not prove possible, at least in time to prevent a global economic crisis.

On both issues, the budget and the debt ceiling, Trump’s weakness matters quite a lot. But on tax reform it is his strategy that is the main obstacle to success. He could have given a wonderful and appropriate speech in response to Charlottesville and it wouldn’t have had much, if any, material impact on his prospects for signing a tax reform bill. His problem is actually more serious. Congressional Republicans can’t act in concert, and any plan that relies on them following along uniformly is going to fail.

After the recess, if the Republicans quickly pass a budget resolution with budget directives for tax reform, only then can we begin to discuss how Trump’s embraces of Neo-Nazis has imperiled his desire to sign a tax reform bill.

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