The Senate Republicans have a big decision to make this week. Are they going to approve a budget?
Despite the slimmest of margins, made narrower by the absence of an ailing Sen. Thad Cochran (R-Miss.), Senate Republicans will try this week to adopt a budget that allows the party to cut taxes by $1.5 trillion. Their success isn’t assured, since Sens. Rand Paul (R-Ky.) and John McCain (R-Ariz.) have yet to commit to the plan. Securing the votes — assuming House Republicans then follow suit and accept the Senate version — makes it more likely that Republicans won’t be heading home empty-handed from the tax project. The budget will give them enough leash at least to slash individual rates temporarily, as they did in with the 2001 and 2003 Bush tax cuts.
Senator Corker of Tennessee is a clear skeptic of the framework that has been discussed for tax reform, but he’s indicated that he considers the vote on the budget a procedural move rather than an otherwise important document that sets out the spending priorities for his governing party. It sounds like he will not stand in the way of passing a budget, even though he’s definitely not yet on board with voting for any final tax product.
I’ve discussed this over and over again: the budget is needed to begin a process known as “budget reconciliation.” Using this process, the Senate Republicans can pass a tax bill with only fifty votes and the vice-president breaking the tie. If they can’t pass a budget, they can’t use this process to avoid a filibuster and they will have to actually negotiate a tax bill with the Democrats. This isn’t the only procedural hurdle standing in the way of a successful tax effort, but it’s the first and most important one.
With Sen. Cochran unavailable, the GOP can only afford to lose one additional vote. Yet they still stand a good chance of prevailing on the budget because it’s seen not so much as a substantive bill over which you might haggle than as a permission slip to begin the process.
I don’t usually have any interest in offering the Republicans advice, but I am going to make an exception in this case. It would be a major mistake to vote for the budget.
Once they approve a budget, it will start a process much like the one they went through in the effort to repeal Obamacare. Only in this case, the likelihood of success depends much more on how you want to define success. If the idea is to enact a major tax reform reminiscent of the 1986 overhaul, the odds against that are 100 percent. If the idea is to pass a permanent tax cut that won’t sunset, the rules of budget reconciliation make this almost completely impossible because they won’t be able to create something that is budget neutral past a ten-year window. If, on the other hand, they’re willing to do something that expires after ten years and that isn’t all that ambitious, they have a decent chance of accomplishing their goal.
The first consideration for the Republican senators who will be voting on the budget this week is whether they want to roll the dice on some watered down tax cuts based on nothing better than a decent chance of success. Perhaps the consequences of failure are too great to contemplate and not making the effort at all would be too catastrophic to countenance. Maybe a decent chance looks better than no chance.
But even assuming that they want to give it a shot, they should look at the kind of mess they’re headed into. Take the following as an example:
Tax-writers originally envisioned a full repeal generating some $1.5 trillion in revenue to help fund lower rates and immediate expensing of capital investments. But the proposed rollback of the tax code’s preference for debt financing has already sprung a number of leaks — with lawmakers talking up the possibility of carve-outs for farmers and ranchers, electric utilities, land purchases and others.
Likewise, the push by Republican leaders to scrap the deduction for state and local taxes is taking on water. Republicans in high-tax states, including New York, New Jersey, Pennsylvania and Illinois, have called the proposal a nonstarter. So, the GOP brass is hoping to limit the break for top earners, although how to define that group isn’t obvious.
They’re going to find themselves in a situation where they’re creating an unholy mess of a tax code with all kinds of carve outs, introduced solely to try to get every last vote that they’ll need and not because the carve outs make any sense or have any merit.
The resulting bill will be predictably awful. Consider for a moment the distorting incentives that would be created by something like this:
National Economic Council Director Gary Cohn channeled the sentiment on Monday, telling the annual meeting of American Bankers Association in Chicago that tax-writers are considering limiting a repeal of the interest deduction to corporations. That would mean businesses organized on the individual side of the code, including real estate partnerships such as the Trump Organization, could still claim the break.
The more you look at how the tax code will be slapped together in a haphazard manner to secure votes, the easier it is to see both how difficult it will be to succeed and the high probability that the legislation is a disgrace that will burden anyone who supported it.
All of this can be avoided by simply slamming on the brakes now and refusing to authorize the budget that is needed to get this process started.
The person most likely to take this position is Senator John McCain, who has already said repeatedly that he doesn’t want to continue to try to push Trump’s agenda through using the budget reconciliation process. He wants “regular order,” which means a typical process with committee hearings and markups and an extensive amendment process. But it also means that the process will require the ultimate support of sixty senators.
Mitch McConnell can’t tell the party’s donors that he cannot pass a worthwhile tax cut. Donald Trump isn’t going to tell them that. The only way to avoid this mess is for a couple of Republican senators to kill the effort in the crib by refusing to vote for the budget.
It might seem like a giant betrayal, but if it saves the party from wasting months of effort on a process that can never achieve their main goals and has no better than a decent chance of resulting in (what will be) a terrible tax bill, then preventing the budget from passing will be an act of principled sacrifice that is in the medium-term interests of the party.
Of course, if McCain goes this route and Cochran can’t vote, there still needs to be one more Republican senator who is willing to stand up and introduce some sanity into the conversation. I wouldn’t place any bets on this happening, but it’s within the realm of possibility. For example, Sen. Rand Paul just announced that he will oppose the budget unless the leadership agrees “to cut billions in spending from the plan.” On the other hand, he also just voted for a motion to proceed to the bill.
If the budget fails, the Senate will regroup and the Finance Committee will begin looking at ideas that the Democrats could support. The donors will be furious, obviously, but also interested in seeing what they could get out of a bipartisan process.
Before long, it will be clear that both Trump and McConnell have been saved from a repeat performance of the Affordable Care Act fiasco. They’ll probably both see an uptick in their approval numbers once the Republican base gets over their initial disappointment.
And a bill that would have some support from the Democrats actually could be produced in time for the midterms, taking steam out of the narrative that the Republicans are too ideological to govern.
If the budget passes, it will ensure a disaster for the Republicans. It’s hard to convince them of this. They believe the exact opposite to be the case. But they’re wrong, and it won’t do them any good to find this out the hard way.