Why Republicans shouldn’t be so optimistic their tax bill will be a big win
Republicans are on the verge of passing a massive tax cut for businesses that is deeply unpopular with the American public. They are doing it with no Democratic votes and at a moment when the U.S. economy looks pretty healthy (typically, tax cuts are most effective when the economy is struggling and the government wants to revive it). A surprising number of chief executives admit their top plan for the extra cash is to pay shareholders more, not grow jobs and wages. Billionaire chief executive Michael Bloomberg went so far as to declare the bill a “trillion-dollar blunder.”
So all of this raises the obvious question: Why are Republicans doing this?
‘It’s the politics, stupid’
Political analysts say it’s all about the 2018 midterm elections. President Trump and Republicans swept into office in November 2016 and so far have few major legislative achievements, even though they control the White House and both chambers of Congress for the first time since 2007.
“The American people are just not going to accept the fact that we do not get our job done after we’ve talked about this for years,” Rep. Diane Black (R-Tenn.) said Thursday on Fox News. Black is chair of the House Budget Committee and a member of the conference committee that spent the past week hammering out the final tax bill. “We need to get this over the line.”
Getting a tax cut done shows the GOP is doing something, particularly on an issue — tax cuts — that has been at the core of Republican orthodoxy since the Reagan era. The surprise victory of Democrat Doug Jones in Alabama also means Republicans would likely have a harder time passing a bill like this next year.
But pursuing legislation that most of the country doesn’t like is still very risky. Poll after poll shows only about a third of Americans think it’s a good idea. The vast majority feel it’s heavily skewed to the rich and big businesses.
Yet Republicans are optimistic. Why? Perhaps because most Americans are getting a tax cut under this plan, and if growth gets even hotter and unemployment gets even lower by Election Day, voters could reward the GOP, at least in the short term.
GOP mentality: growth conquers all
For Republicans, the fundamental belief driving this tax bill is that it will unleash substantially stronger economic growth that will solve many of America’s problems — from debt to inequality. The thinking goes like this: Give corporations a massive tax cut and most Americans a decent-sized cut. Then business leaders and families will turn around and spend that tax savings on buying stuff and hiring more workers. That, in turn, should generate even more economic growth, causing businesses to employ more people and incomes to rise a lot for the first time in decades.
Many GOP lawmakers have made this argument in recent days.
Rep. Darin LaHood (R-Ill.): “This is going to get the economy roaring again.”
Trump: “We stand on the verge of a new economics miracle,” he said Wednesday, predicting economic growth would jump above 4 percent (it’s on track to be 2.5 percent this year).
House Speaker Paul D. Ryan (R-Wis.): “We know for a fact that the studies show us you lower the corporate tax rate, workers benefit.”
Sen. John Thune (R-S.D.): “We didn’t have good growth in the last eight years under the Obama administration. We were averaging 1.5 to 2 percent growth … I can’t believe that would be acceptable to people in this country.”
Senate Majority Whip John Cornyn (R-Tex.): “I do believe this tax bill will help stimulate economic recovery that will more than offset any deficit.”
Republicans are correct that growth since the Great Recession of 2008-2009 has been sluggish. It’s been about 2 percent, far lower than America’s historic average of about 3.5 percent.
But there are good reasons to doubt GOP optimism that the tax bill will turbocharge the economy (at least beyond 2018 and maybe 2019).