When Populism Means Corporate Tax Cuts

Here’s is something worth pondering for a few minutes:

On Tuesday, [Freedom] caucus chairman Rep. Mark Meadows (R-N.C.) said he would not vote for a final tax bill if the corporate rate rises above 20 percent. That is the rate proposed in the [House budget] framework.

Unlike, say, the Congressional Black Caucus, the Freedom Caucus doesn’t have an official roster, and it doesn’t have a mission statement. It’s hard to define exactly what it is even though Rep. Meadows is consistently labeled as their chairman. Yet, we all talk about it and seem to know what we mean most of the time. Wikipedia says “the caucus is sympathetic to the Tea Party movement” and “is considered the farthest-right grouping within the House Republican Conference,” which appears accurate to me. You’ll see them variously described as “populist” or “antiestablishmentarian.”  At least in theory, they’re a contrast to the classic Connecticut Yankee country club Republican typified by the Bush family before they started making accommodations to the Reagan wing of the party.  The Freedom Caucus shouldn’t be carrying water for Wall Street. If this were The Grapes of Wrath, they’d be looking to string up the bankers who’ve come from New York to repossess the tractors and farms.

Yet, the chairman’s bottom line position on tax reform pertains to corporate rate of taxation. He wants it lower.

Now back in July, the Freedom Caucus refused to support the House Budget Committee’s plan because they wanted to see the tax reform plan first. The Budget Committee chairwoman, Rep. Diane Black of Tennessee, argued that she needed the budget to unlock the special reconciliation rules that allow the Senate to avoid a Democratic filibuster, and only after she had an approved budget in hand would they be able to really get down to work on the details of their tax plan. That created a chicken and egg problem that has so far remained unresolved.

There has been progress, however, and earlier this week the Freedom Caucus announced that they would go along with the tax framework (as limited as it is) that the leadership unveiled. This presumably means that they’ll vote for the budget despite all their previous concerns and demands on deficit reduction and entitlement reforms which have otherwise gone unmet.

Likewise, the Senate Budget Committee sounds like they’re ready to move their budget, although you should be astounded to see how their confidence contrasts with their uncertainty. Sen. Pat Toomey of Pennsylvania is quoted, saying “I think within probably the following week we’ll be on the Senate floor with a budget.” But then there is this:

One major question is whether Republicans will insist on including plans for major reforms to entitlement programs and other deficit-reduction measures in the budget document. An alternative would be to pass a “shell” budget that steered clear of politically difficult questions about major reforms, and just unlocked the reconciliation procedure.

Toomey said that he wasn’t sure which direction the panel would take.

Another way of putting this is that the Republicans still don’t know if they can pass a budget. If they can’t, they’re prepared to pass a “shell” of a budget that doesn’t actually contain a budget at all. It would be nothing but budget reconciliation instructions that are piggy-backed on an otherwise empty and hijacked budget bill. It’s a way of abiding by and taking advantage of the Byrd Rule while violating everything that the Byrd Rule was designed to do.

This is precisely what the Republican leadership did back in January to fast-track their effort to repeal Obamacare. They took the bill that was supposed to be last year’s budget and hollowed it out. What they put in wasn’t a budget at all, but simply instructions for the committees with jurisdiction on health care. This allowed them to do precisely what the late Sen. Robert Byrd sought to avoid, which is to use the budget process to enact legislation that could not ordinarily pass under regular order.

At the time, the Freedom Caucus was extremely unhappy with the tactic because they always want to use the budget process to drive cuts in government spending. In fact, at first the Freedom Caucus members were confused by the procedural gambit they were being asked to support and had to be reassured that “it wasn’t a real budget.” They were won over with the promise that they could wage their budget battle over the summer as this year’s “real” budget was negotiated.

And the Freedom Caucus did attempt to extract concessions during the budget negotiations, which lead ultimately to a stalemate and explains why the full House still hasn’t produced one. As I began pointing out repeatedly in August, the Republicans were not going to be able to do tax reform if they remained deadlocked on a budget, and that meant that the Freedom Caucus would have to back down.

It appears that we’ve finally gotten to the point where the Freedom Caucus understands that they can’t get the tax cuts they want if they don’t vote for a new budget, and if that budget has to be an empty shell (again), then they are perhaps prepared to admit they were taken for a ride back in January. That’s really what Sen. Pat Toomey is saying when he explains that he’s not sure which direction his party will take.

Procedurally, both the House and Senate need to pass a budget. Those budgets will need reconciliation instructions for tax reform (and possibly for Obamacare repeal, too). The two bills will then have to be melded into one bill, probably in a Conference Committee.  And then each chamber will have to pass the melded bill with no amendments.  If they can accomplish that, their job is done. Budget resolutions do not become laws and don’t go to the White House for the president’s signature.

Now, some Republicans (including Sen. Lindsey Graham of South Carolina) say they won’t vote for a budget resolution that doesn’t include instructions for eliminating the Affordable Care Act. The Freedom Caucus has spent all year promising that they won’y vote for a budget resolution that doesn’t include large, specified cuts to entitlements.

But then we see Freedom Caucus saying that they’re on board with tax reform, and we see Lindsey Graham saying that enacting tax reform is “the difference between succeeding as a party and failing. It’s the difference between having a majority in 2018 or losing it. It’s the difference between one term and two.”

What it looks like is that a whole lot of this year’s effort and rhetoric and ambitions are going to be set aside and wasted in order simply to get a chance to pass tax cuts at the fifty-vote threshold in the Senate. And, for the Freedom Caucus, despite their populist reputation, the only thing they really care about is that the corporate rate of taxation not exceed twenty percent.

To me, this is a completely fraudulent kind of economic populism.

I also wonder about their judgment. I definitely do understand the sentiment that the Republican Party desperately needs to accomplish something major legislatively, but what they’re seeking to do here won’t actually be popular except among their donor class. The donors are obviously important, but they just helped Mitch McConnell outspend Roy Moore more than five to one in the Alabama special election and it didn’t prevent Luther Strange from losing his Senate seat. Donors only get one vote each, and doing their bidding at your base’s expense isn’t obviously a way to improve your popularity.

So, in conclusion, we first want to see if the House and Senate can each pass a real budget. If they can, we’ll see if they can meld them together into one bill and pass it. If they can’t do these things, they’ll try to pass another empty shell of a budget.

Only when they’re done with that process will they get to the really hard stuff, which includes trying to devise changes in the tax code that don’t hurt the parochial interests of more than two Republican senators to the point that they won’t vote for them.

And this is going to be attempted despite the fact that back in July, White House Director of Legislative Affairs Marc Short and Treasury Secretary Steve Mnuchin made it known that they didn’t think the tax reform effort could succeed this way and asked that the whole plan be scrapped in favor of a bipartisan process.

We can taste their desperation which will help them move the process forward. But there are so many pitfalls on this path that it’s very hard to predict they’ll ultimately have success.

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