We Should be Taking President Trump’s Tax Plan Seriously

By: David J. Herzig

Today President Trump’s top tax advisors laid out the first details of the his tax plan. Chief economic adviser Gary Cohn and Treasury Secretary Steve Mnuchin unveiled the plan which according to Fox News, Cohn called “the most significant tax reform legislation since 1986, and one of the biggest tax cuts in American history.”

Oh, did I mention that the details of the biggest cuts were printed on a single sheet of paper?

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There has been plenty of ink (and jokes) already spilled about the plan.  For example, you can read Richard Rubin of the WSJ (here) or Alan Rappeport of the NY Times (here). The long and the short of the plan is it seems to very very costly.  The Committee for a Responsible Federal Budget guesses it could cost $3 to $7 trillion with their estimate at $5.5 trillion.  That is a lot of money!

I will come back another day (as I am sure my co-bloggers will) to discuss the various proposals.  For now, if you want a quick look here is Lily Batchelder’s summary about the regressive nature of the plan.

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Many have already discounted the proposal because conventional wisdom is that Congress sets and pushes forward tax reform.  After all, budget bills start in the House and then go to the Senate before they end up with the President.  (Here is the School House Rock video). Also, how serious can a single page proposal be? After all, as Len Burman pointed out, Reagan’s first draft of tax reform was three volumes and over 500 pages.  Here Trump is no Reagan.

Here is the problem with conventional wisdom, President’s tend to get their policy preference’s enacted into law.   So, dismissing Trump’s single page proposal as fodder is mistaken.  In fact, if anything, President Trump’s proposals are rather consistent with his prior policy statements.  I interpret this to mean that these are actually not fleeting preferences.  If this is a constant list of preferences and President’s are good historically at getting their preferences enacted into law, we should take these bullet points seriously. 

And let me add one other item.  If it is true President’s get their preferences into law, the entire plan even with its warts could be passed.  Wait, you say that is impossible!  There are two ways tax bills become law: a budget reconciliation plan or a traditional budget bill.  If Congress pursues a reconciliation plan, with the simple majority the Republicans hold in both houses this would seem to be an easy path.  (Yes, I know that reconciliation did not work out too well with Affordable Care Repeal and Replace).  As was the case with ACA repeal, the downside to the fast track reconciliation process is that the plan has to be revenue neutral thanks to our old friend the Byrd rule. Here, it seems rather unlikely even with the most favorable dynamic scoring that the proposal would meet the Byrd rule.  

That would leave the regular budget process as the only mechanism to accomplish President Trump’s the tax reform. There is no limit to the addition of debt (other than say the Pay-Go rules) in a regular budget bill. The likelihood of getting Democratic buy-in on a Trump tax plan that at first blush seems to favor the wealthy at the expense of the middle and lower-class is unlikely.

But, let me throw out another potential avenue for the passing of the Trump budget with the deficit and the use of a simple majority – the busting of the legislative filibuster.  In an upcoming essay, Daniel Hemel and I argue that a real consequence of the break of the judicial filibuster by the Republicans for the nomination of Justice Gorsuch puts all the filibuster norms in jeopardy.  Could we see $5 trillion added to the deficit to fund tax cuts via a traditional budget bill and a simple majority? Unfortunately, my answer is maybe.

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