The Debt Is No Reason To Kill Tax Reform

November 30, 2017

Tax reform is not polling well. In a mid-October CNN survey, only 34% of Americans favored “the tax reform proposals made by the Trump administration.” A week later, a poll by The Wall Street Journal and NBC News found only 25% thought “President Trump’s tax plan is a good idea,” compared with 35% who said it was a bad idea.

Around the same time, CBS News found that just 38% approved of “the way Donald Trump is handling tax policy.” That’s roughly the president’s job-performance rating in the Real Clear Politics average, which was 39.5% Wednesday. Still, public opinion on tax reform is fluid and will be affected by what happens if the bill passes.

The saving grace for Republicans is that voters trust the GOP more on these issues. A late October survey from Politico and Morning Consult found that 42% of voters trusted congressional Republicans on the economy, compared with 38% for congressional Democrats. The numbers on jobs were the same—42% for Republicans, 38% for Democrats.

Polls aside, the GOP is betting that Americans will see the results of tax reform in two important ways: larger paychecks in January, when the reduced withholding will go into effect, and a better overall economy that will add jobs and demonstrate greater strength next year.

Still, passing tax reform through the Senate won’t be easy. Republican skeptics fall into three main camps. First, some senators want “pass-throughs,” the small businesses that are taxed under the personal code, to have parity with corporations. Although the Senate bill gets close to that, true equality of rates would be expensive and difficult to achieve.

Other senators are uncomfortable using the tax bill to repeal ObamaCare’s individual mandate. Yet killing the mandate is tax relief for families with modest incomes: Among those who pay ObamaCare’s tax on being uninsured, more than a third make $25,000 or less annually, and 80% make $50,000 or less.

The third group of GOP holdouts is the deficit hawks. Ignore for a moment the hypocritical squawking of Democrats, who supported President Obama in adding $9.3 trillion to the national debt over eight years. Yes, America’s deficit problem is troubling and about to get worse: The Congressional Budget Office forecasts that the public debt will rise from 75.5% of gross domestic product in fiscal 2017 to 85.6% in 2026.

But keeping the tax code’s status quo—unfair, costly to comply with, detrimental to economic growth and American competitiveness—won’t make the debt problem go away. The CBO estimates that, without tax reform, Washington will collect $42.1 trillion over the next decade. Outlays will reach $51.4 trillion, meaning another $9.3 trillion added to the debt. The only way to mitigate the problem is to constrain federal spending.

This will require congressional Republicans to tackle mandatory spending, which is made up mostly of Social Security and Medicare. The CBO says mandatory spending will rise from 70% of all outlays in fiscal 2017 to 78% in 2026. That will squeeze the discretionary portion of the budget, which includes defense, education, transportation and everything else.

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As a candidate, Mr. Trump opposed restraints on mandatory spending. But if Republicans are serious about fiscal responsibility, they must deal with entitlements. To keep the debt from rising above 75% of GDP, Congress would have to prune outlays over the next decade by $2.9 trillion—or somewhat less if growth is above the anemic 1.9% that the CBO projects. To begin with, congressional Republicans should ignore Mr. Trump’s desire for a $1 trillion infrastructure bill. If President Obama’s $800 billion stimulus in 2009 didn’t produce robust economic growth, why assume a better outcome today?

Passing major legislation like a tax bill is inherently difficult, even when the president’s bully pulpit is properly deployed. In this case, Mr. Trump has yet to make a convincing and consistent case for tax reform. He has held occasional rallies to rev up true believers, but calling for a “big, beautiful tax cut” won’t persuade skeptics and fence sitters. Then there are the president’s Twitter attacks on senators whose votes he needs. On Nov. 19 he called Sen. Jeff Flake “unelectable” and “toast,” and on Oct. 25 he launched on Sen. Bob Corker (“zero chance of being elected”). This is political malpractice.

Republicans are counting on a few wavering senators to put country, prosperity and their party above the understandable desire for personal payback against Mr. Trump. The president often makes things harder than they need to be.

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