Republican Deficit Hawks Vanish as Senate Races to Pass Tax Bill

(Bloomberg) -- The Republican chase for a rare political and policy win with passage of their tax plan has thinned the ranks of the party’s deficit hawks.

The last one standing in the Senate chamber was Senator Bob Corker of Tennessee, and he was resigned to defeat. His colleagues were moving ahead to pass as soon as Friday night what would be the biggest overhaul of the U.S. tax code in three decades, and one that’s projected to add $1 trillion to federal deficits over the next decade.

“I am not able to cast aside my fiscal concerns and vote for legislation that I believe, based on the information I currently have, could deepen the debt burden on future generations,” Corker said in a statement. He added that he was keeping the option to cast a yes ballot on the final legislation once it emerges from negotiations with the House.

Asked earlier this week if his increasingly isolated stand against adding to budget shortfalls made him feel like one of a dying breed, Corker, who’s retiring when his term ends after the 2018 elections, answered: “I do.”

The Senate was supposed to be a foot on the brake to hold back tax cuts so massive that they would add significantly to the deficit. Senate Majority Leader Mitch McConnell of Kentucky made clear after President Donald Trump was elected that any tax-cut bill -- a high priority for the White House and congressional Republicans -- mustn’t create budget shortfalls and add to the national debt.

“It will have to be revenue-neutral,” McConnell told Bloomberg News in mid-May. “We have a $21 trillion debt.”

Tax Trigger

Yet as the $1.4 trillion tax package came together in recent weeks, McConnell’s pledge evaporated. A small coalition of deficit-conscious Senate Republicans, including Corker, sought to add a mechanism to trigger future tax hikes if assumptions of higher economic growth fell short. But that attempt collapsed after the Senate parliamentarian ruled it violated Senate rules, and an effort to add more tax revenue back into the legislation failed.

After deals were cut and promises made, McConnell by Friday afternoon had 51 Republican votes to clear the legislation. It cuts tax rates for corporations and some partnerships and limited liability companies. Taxes for most individuals also are lowered, although they’ll return to current levels after 2025, one of the measures taken to prevent ballooning deficits even more.

Major provisions were added as a way to win votes, including benefits for individuals who pay property taxes and for people with large medical expenses.

$1 Trillion

Proponents of the tax package have argued that it will boost economic growth so much that government revenue will increase enough to close the budget gap.

An analysis released Thursday by the Joint Committee on Taxation, Congress’s official scorekeeper on tax matters, concluded that while the Senate bill would boost gross domestic product by about 0.8 percent on average over the next 10 years. But that still wouldn’t cover the loss of government revenue, leaving a shortfall of roughly $1 trillion over the decade, according to the JCT analysis.

The JCT report was only the latest in a series of analyses to reach a similar conclusion, whether economic growth is accounted for or not.

Senators Jeff Flake of Arizona and James Lankford of Oklahoma had joined with Corker earlier this week in urging some mitigation of potential deficits.

Lankford on Nov. 27 said he thought there should be as much as $1 trillion in higher taxes built in if needed. But by the middle of the week, the group was seeking just $350 billion in recouped revenues -- and then they ran into a buzz-saw of opposition from conservatives, including Ted Cruz of Texas, who wanted spending cuts in the event growth fell short.

Debate Drama

Thursday night, Corker and Flake joined another Republican holdout -- Ron Johnson of Wisconsin -- to hold the tax debate hostage for about half an hour on the Senate floor. The trio withheld their votes in opposition to a Democratic amendment to send the entire bill back to committee. They were clustered in talks with Republican leaders, and it appeared they may be getting traction on a compromise.

It turned out, lawmakers said later, the Senate parliamentarian had dealt their effort a significant setback. John Cornyn of Texas, the Senate GOP’s No. 2 leader, said the parliamentarian, Elizabeth MacDonough, told senators it was her belief a trigger provision wouldn’t qualify for protection from a Democratic filibuster like the rest of the bill, which can pass with just 51 votes in the chamber that the GOP controls with just 52 votes.

Motivated by Obamacare

Marc Short, the White House’s top lobbyist, told reporters Friday that there won’t be any trigger in the bill. He joined GOP leaders in declaring confidence there’s enough support to clear the bill, anyway. The July collapse of the Republican drive to repeal the Affordable Care Act helped, Short said, as lawmakers anxiously sought a key accomplishment for 2018, a year in which the GOP held both the White House and both houses of Congress.

“There’s no doubt‪ ‬that ‪repealing Obamacare -- that effort not succeeding -- put additional pressure on all of us to get tax relief done,” Short said.

Flake and Lankford have now announced their support for the bill, even though continued talks through the night failed to identify an alternative. Asked if he felt he had any traction left, as Republican leaders appeared to have the votes they needed to pass the legislation, Corker responded, “not really.”

McConnell has insisted in recent weeks that the tax plan won’t expand the deficit. He embraced the idea of “dynamic” assumptions about tax cuts being offset by higher economic growth. Although disputed by many economists and in independent assessments of the tax bill, it’s an outcome widely cited by House Republicans and, it turns out, a growing number of those in the Senate as well.

“I think it’s pretty clearly wrong,” Cornyn said of the JCT analysis, “but it’s their opinion.”

©2017 Bloomberg L.P.