There’s chaos in Washington—and many of Al Mottur’s clients are worried. A leading lobbyist for Brownstein Hyatt Farber and Schreck, Mottur has been in the capital for decades. But the 50-year-old has never seen anything like Congress’s attempt to completely rewrite the tax code by Christmas. And many of his firm’s clients are afraid they’ll get slapped with new taxes. “The enormity of what [the Trump administration is] trying to do to the economy and the tax code,” he says, “is inversely proportionate to the time they’re giving it.”
Is Donald Trump really draining the swamp? Not so much. He’s just changing the water. The December holidays are about a month away, but the Republicans are already decorating their bill with trillions of sparkly ornaments. The biggest giveaways include a huge reduction in the corporate income tax rate—from 35 percent to 20 percent—and the elimination of the estate tax. (It affects only a few thousand extremely wealthy families, including the Trumps and their in-laws, the Kushners.) Beyond the bill’s big-ticket items, there are small ones that have special interests eager to hire top talent like Mottur to cover their assets. He’s loath to talk about what he’s doing behind the scenes, but he’s urging clients to remember that any deduction Congress preserves means lawmakers have to find another perk to eliminate. “It’s like moving place cards for a wedding,” says Maya MacGuineas, the head of the Committee for a Responsible Federal Budget, a D.C.-based think tank focused on the deficit. “If you cut one thing, you have to replace it with another.”
This special-interest saturnalia is exactly what Trump promised to eliminate. Lobbyist registrations are up more than 100 percent in 2017, and one public-interest group thinks $1 billion could be spent by organizations trying to persuade Congress to do this or that. If Congress’s current efforts lead to a simpler tax code, greater economic growth and benefits for average Americans—that might be an acceptable downside. But in its current iteration, the Republican plans in the House and Senate do very little of that, according to independent analysts. As Trump’s economic adviser Gary Cohn told CNBC recently: “The most excited group out there [about the tax plan] are big CEOs.”
It’s no wonder the Trump-Republican plan has incited liberals to form a lobby called Not One Penny—a nod at how the wealthy don’t deserve any new tax breaks. The group has held rallies featuring giant Trump puppets and attracted speakers like House Minority Leader Nancy Pelosi of California. It has also launched ads lambasting a similar trickle-down plan passed in Kansas that pushed the state into fiscal chaos. “It was an abject failure,” a Republican farmer, Mike Faul, says in the ad; he had supported the Kansas measure and now regrets it. The GOP may soon feel the same way about the new plan in D.C.
No one thought changing the tax code would be easy. The last time a president completely revamped it was in 1986, when Ronald Reagan and the Democrats agreed on a law that lowered rates and eliminated loopholes. But that happened only after years of work. Since then, the loopholes have returned, despite the many lawmakers in both parties who aren’t happy about it.
Unfortunately, neither party can agree on the appropriate remedies. During President Barack Obama’s second term, Representative Dave Camp, a Michigan Republican, fought hard for sweeping changes in the tax code, creating working groups of Democrats and Republicans to come up with a bill. The Dems opposed it, and the bill never went far.
Trump and the GOP need the current tax plan to fare better since they’ve failed to pass any major legislation this year. But from the beginning, the process has been mired in haste and secrecy. Instead of holding public hearings about the plan, in late September, House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, House Ways and Means Chairman Kevin Brady and Senate Finance Committee Chairman Orrin Hatch, along with Treasury Secretary Steve Mnuchin and Cohn, who is director of the National Economic Council, privately hashed out some broad principles.
Lobbyists descended on Capitol Hill, trying to influence the blueprint. When the outline came out, some interest groups were relieved: It didn’t live up to Trump’s promise to repeal the so-called carried-interest provision on hedge funds, which allows partners to be taxed at a 20 percent rate, far below what their secretaries might pay.
When Brady released the House plan in November, the lobbying scrum only grew bigger and rougher. The Business Roundtable, which represents the nation’s largest corporations, launched television ads to keep the corporate rate low. The RATE Coalition (Reform America’s Taxes Equitably), which is backed by big businesses from Aetna to Walmart, used veterans of Democratic and Republican administrations to make a case for why corporate cuts would raise family incomes. (Never mind that lowering businesses’ taxes could wind up funding stock buybacks, not building new factories.) Meanwhile, the National Association of Realtors blitzed lawmakers with emails and mobilized brokers to preserve the mortgage-interest deduction, which the House GOP plan limits.
Other interests are taking part in the tax orgy, too. Teachers are pushing to keep a deduction for classroom supplies. Charities are fighting the plan’s big hike in the standard deduction, fearing fewer people will itemize their taxes—the only way to write off charitable contributions. Universities are freaking out; the House GOP plan would require their endowments to pay a tax on investment income and scrub the deduction for interest on student loans. Meanwhile, state and local lawmakers—along with public employee unions—are livid over plans to eliminate the state and local tax deduction that dramatically eases the burden for people in high-tax states like New York and California. All these interest groups are ramping up the pressure on Congress. In early November, lobbyists crowded into the Ways and Means hearing to influence the amendments to Brady’s bill. Some got what they wanted: Pro-lifers and would-be parents, for instance, restored an adoption tax credit.
None of these efforts mean the bill will pass; it could easily unravel, depriving Trump and the GOP of a much-needed win. The House bill, for instance, adds to wealth inequality, according to multiple analyses that show most of the benefits go to the rich, especially those who live off capital gains. It also adds $1.5 trillion to the national debt, which some fiscal conservatives oppose. And the corporate tax cut is so enormous, it exceeds even what the Business Roundtable was once touting.
If the bill does go through, it’s unlikely to be the model of simplicity—or engine of economic growth—that its advocates claim. Some Americans could find it easier to do their taxes next April, but companies will face “more complex rules,” says Michael Mundaca, co-director of the national tax department at EY (formerly known as Ernst & Young). And despite claims by the GOP to the contrary, for many businesses and individuals, “the role of tax consultants will be more important,” Mundaca adds.
Welcome to the swamp of the future.