Your Tax Cut Isn't Likely to Be Made Permanent Any Time Soon

(Bloomberg) -- House Republicans are approaching their next attempt at tax cuts the same way they did last year -- by excluding Democrats from the process. But this time a party-line vote won’t be enough, and that may be the point.

GOP leaders aren’t planning on using the procedural trick they deployed in 2017 that allowed them to bypass Democratic opposition and pass the tax overhaul bill with a simple majority. So they’ll need at least nine Senate Democrats to back a so-called phase two of tax changes that would focus on making the individual tax cuts permanent.

So far, Democrats have been excluded from talks about what a second round of tax legislation would entail, according to a Republican lawmaker on the House’s tax-writing committee. GOP leaders are also considering timing a floor vote to April 17, when income tax returns are due, said two Republican members of the committee, who asked not to be named because the discussions are private.

Those moves show the effort is shaping up to be a political ploy to bludgeon Democrats ahead of congressional elections in November. Unlike last year, Republicans need buy-in from some Democrats because the effort would be subject to the 60-vote threshold in the Senate, where the GOP has 51 members.

The timetable for a second round hasn’t been set, but the current thinking is to roll it out this year, House Ways and Means Chairman Kevin Brady said during a Bloomberg TV interview on Wednesday. “We’ll see if Democrats want to obstruct or want to be part of this process,” the Texas lawmaker said. It’s a similar line he used during last year’s tax debate.

President Donald Trump mentioned a potential phase two in February -- and since then, incoming White House economic adviser Larry Kudlow and congressional GOP leaders have added momentum to the effort and highlighted the importance of giving permanent relief to individual taxpayers.

“We’re in political season at this point,” said Tom Davis, a former Republican congressman who used to run the party’s House election arm. “To taxpayers that are now starting to receive the benefits of the tax cut, they’ll know where Republicans stand on a tax cut that Democrats oppose.”

Tax Problems

Democrats have assailed the new law as a giveaway to corporations and the wealthy, and they’ve called for drastic changes.

“I’m ready to have a discussion with them. They want to fix some problems in the tax law? I want to fix some problems in the tax law,” said Senator Chris Murphy, a Connecticut Democrat. Murphy said one of his demands was reducing the deficit impact of the bill.

Making the individual cuts permanent is estimated to cost $1.5 trillion in the decade after 2025, according to a Tax Foundation analysis using numbers from the Joint Committee on Taxation. Republicans had to sunset the individual changes to conform to the budget they set under Senate rules.

Raising the issue now forces Democrats to take an uncomfortable stance against middle class tax relief. If the individual tax breaks expire at the end of 2025, the bottom 80 percent of Americans would pay higher taxes than they would if the law never passed, according to an analysis by the nonpartisan Tax Policy Center.

“We welcome Democrats to work on continuing to help our families and our businesses grow,” Brady said Wednesday. “But look they’ve got to make that decision -- if they want to go back to the old tax code with higher tax rates and businesses and headquarters still moving overseas?”

Republicans on the Ways and Means Committee described tying the individual tax cut extension to "tax day" as one option they’re working on. It’s not clear what, if any, other measures would be included.

If GOP tax writers choose to include the extension of business provisions such as full and immediate expensing -- which allows companies to fully write off their capital expenditures right away -- it could be a sign that Republicans are more serious about the effort, according to one tax analyst briefed on the GOP plans who asked not to be identified because the discussions are private.

Middle Class

There are perils for Republicans in re-litigating the tax overhaul: It reminds voters that the GOP made the unpopular corporate tax cuts permanent and the popular middle-class breaks temporary. A second round that only consisted of making the individual breaks permanent would also force the self-styled party of fiscal responsibility to make the case for blowing out the deficit beyond the $1.5 trillion the current tax law adds in the first decade.

Still, Davis said that taxes would be a better conversation for Republicans to have than the chaos and legal woes surrounding the White House that have dominated the political conversation this year.

Some GOP operatives see the tax law as their only significant legislative achievement and therefore make-or-break for the party’s electoral hopes.

“The central question for November is: Does the middle think we cut their taxes? If the answer to that is yes, Republicans will keep the House,” said Corry Bliss, who runs the GOP-aligned super PAC Congressional Leadership Fund. And if the answer is no, “voters will punish Republicans,” he said.

“This bill will not sell itself,” Bliss said. “It’s gaining in popularity, but the work has just begun.”

‘Cheap Exercise’

A Gallup poll released March 7 found that 39 percent of Americans approve of the tax law -- up 6 percentage points since January -- but 49 percent still disapprove.

Adam Jentleson, who served as deputy chief of staff for the former Democratic Senate Majority Leader Harry Reid, predicted there’s “very little chance” that nine Democrats would back a bill centered on making the individual tax changes permanent.

“It is a cheap political exercise and they shouldn’t lend it any more credence than it deserves,” he said.

Stock Buybacks

A round two isn’t expected to include any technical fixes to errors or oversights in last year’s law, which will need more time, according to the tax analyst who asked not to be named to discuss plans that have not been made public.

Senator Ron Wyden, the top Democrat on the tax-writing Finance Committee, has criticized Republicans for passing the bill so hastily, and said his party wants fundamental changes to the law.

Republicans have said “the typical middle class person is going to get a $4,000 tax cut -- as of now there is no evidence of that,” Wyden said. What was passed, he said, amounted to "a stock buyback promotion act.”

Last month, Wyden highlighted a report on the Senate floor that showed corporate stock buybacks have reached more than $200 billion since the passage of the tax overhaul-- and were coming in at a rate 30 times greater than worker bonuses.

©2018 Bloomberg L.P.