What Will Republicans Do When Their Tax Cuts Fail?

This originally appeared on Dorf on Law. 

The Republicans passed their regressive tax bill last year in the face of widespread public opposition, with defections by House members from suburban districts and a rushed legislative process that made a mockery of the idea of deliberative government.  Even so, they managed to deliver all of their votes in the Senate, including the self-styled deficit hawks who made a big show of concern before caving to party orthodoxy.

And despite their most fervent wishes and a brief blip in the polls, the new tax law is still not popular.  As I described in companion columns on Verdict and Dorf on Law last week, the public has very good reasons for hating a law that was very clearly designed to worsen already historic levels of inequality.  To their credit, people are not being bought off with a few extra dollars in take-home pay.

Trump speech Congress Vice President Mike Pence, left, and Speaker of the House, Paul Ryan, applaud as President Donald Trump delivers his first address to a joint session of Congress from the floor of the House of Representatives in Washington, D.C. on February 28. REUTERS/Jim Lo Scalzo

In spite of this, will Republicans convince themselves to try to pass another round of tax cuts? And if they do, how will they justify further cuts when the current round of cuts fails?

Republicans certainly face an uphill climb.  Although there was initially a flurry of news reports about businesses tying the tax bill to announcements of bonuses and wage increases that were almost certainly going to happen in any case, enough time has passed that we are now able to see that the law is doing exactly what liberals said it would do: make the rich richer and the rest of us less secure.

Paul Krugman summarized the unfortunate reality that businesses are using their tax cuts to make their owners richer, not to invest in new equipment or engage in activity to make the economy stronger.  He even noted the possibility that the bill could, for reasons grounded in mainstream economic theory but that are nonetheless quite counter-intuitive even to economists, decrease rather than increase workers' pay.  To his credit, Krugman does not trumpet that possibility by shouting that "tax cuts will decrease wages," saying instead that it is unclear what will happen but we should be aware of all possibilities.

In the lead-up to the 2017 tax bill's passage, Senator Lindsey Graham argued that Republicans had to pass a tax cut to prevent Donald Trump from being impeached (which might seem odd, given that Graham is one of the people who supposedly -- and I emphasize "supposedly" -- would be willing to convict Trump in an impeachment trial).  Graham's message was, however, undercut by the revelation that his real concern was that Republicans would be punished by their wealthiest donors if they did not pass a stroke-the-rich tax cut.  It was not about broad political appeal after all.

It is possible, therefore, that conservative activists' talk of a "phase 2" round of tax cutting, which I mentioned in my columns last week, is nothing more than bluster.  Such a new round of cuts -- or at least an orchestrated series of votes forcing Democrats to go on the record opposing tax cuts -- would supposedly be aimed at helping middle-class people (again, I emphasize the word supposedly). And if that were actually true, the big donors frankly would not care.

Still, many Republicans apparently cannot get past the idea that cutting taxes is always a good idea. Donations aside, they are absolutely certain that tax cuts are at the core of their identity as a party and as an anti-government movement.

Amazingly, even the putatively moderate Susan Collins bought into the claim that tax cuts pay for themselves, completely separating herself from reality.  Seriously, she was willing to say that the "dynamic" effects of tax cuts will "actually lower the debt."  Even if she was speaking imprecisely, she has reportedly said that more than $1 trillion of the $1.5 trillion cost of the 2017 cuts will be wiped out by increased growth—more than double the amount that the most generous scoring of the bill predicted (and it was generous). Again, she is called a moderate.

If tax cutting is simply a matter of party identity and ideological DNA, that could combine with purely political strategizing to put Republicans on track for yet another round of tax cuts (which would, as I described in last Friday's Dorf on Law column, be another Trojan Horse for upward income redistribution).  How might they justify this new round of cuts?

Let us set aside for now the just-for-show version of tax cut proposals and imagine that Republicans actually try to justify a new round of tax cuts at some point in the future.  Beyond their usual talking points about tax cuts being the magic elixir to make all good things happen, what new arguments might they make to sell more tax cuts?  What, in particular, might they say to blunt the reality that this latest round of tax cuts will fail to deliver on their promises?

One obvious answer is simply to deny reality.  Republicans have been increasingly brazen in ignoring evidence, not just in the area of tax cuts but in climate science, gun violence, and so many other areas of policy.  They can surely gather enough context-free examples of people who received tax cuts and are happy about it to put together a political strategy.

Beyond dishonesty, however, what might the Republicans use to explain away the failure of the 2017 cuts?  What will be their equivalent of arguing that the sun got in their eyes, that the genius of their tax cuts was unfairly undermined by something else?  What, in other words, will they use to fill in the blank in this sentence: "Well, our tax cuts would have worked exactly as we predicted if only ________ hadn't happened"?

My prediction is that they will blame Trump's tariffs.  Even though it turns out that the steel and aluminum tariffs that Trump recently announced are much more limited in scope than he initially suggested, Republicans were already arguing that "tariffs would stunt economic benefits in the U.S. that could be stemming from the GOP tax cuts."  (Revealing quote of the month: House Ways & Means Committee chair Kevin Brady says that "[t]ariffs are taxes—lower is better, zero is the best.")

And here is where it could become amusing.  Let us imagine that Republicans managed at some point to reverse Trump's trade policies.  (Perhaps a post-impeachment President Pence would do the honors.)  At that point, the Republicans could say, "Now you'll all see how great our tax cuts are." They would be wrong, but that would at least be consistent with any attempt to blame tariffs for blunting the magic of their tax cuts.

My strong suspicion, however, is that Republicans would instead say that they must immediately cut business taxes again. Why? Not merely because "lower is better, zero is the best," but because Republicans will argue that the boost in business confidence that their tax cuts most definitely did cause was sapped by Trump's tariffs and the prospects of a trade war.  Business leaders, the ultimate snowflakes, need to be constantly reassured that we love them.  Hence, we must give them more tax cuts.

Even if my prediction turns out to be inaccurate in the details, however, the larger point is that Republicans need to be working on some excuses to roll out when their tax cuts are revealed to have failed.  The party is absolutely certain that taxes are bad and tax cuts are good, so they will surely be motivated to find something, anything to explain it all away.

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