July 31, 2017    5 minute read

The US Tax Reform: Why It Will Be Dead on Arrival

The Haggling Game    July 31, 2017    5 minute read

The US Tax Reform: Why It Will Be Dead on Arrival

The Whitehouse recently announced, in a joint statement, the broad principles that will inform the administration’s legislative agenda on tax reform for the next few months. Unfortunately, it was not “joint” in the sense of being bipartisan; rather it was a joint statement from the House and Senate.

The statement was crafted by the so-called Big Six: Mitch McConnell, leader of the Senate; Paul Ryan, leader of the House; Orrin Hatch, Chairman of the Senate Finance Committee; Kevin Brady, Chairman of the House Ways and Means Committee; Steve Mnuchin, Treasury Secretary; and Gary Cohn, National Economic Council Director.

The statement was notable for one thing only (the rest being largely anodyne utterances on job creation, hardworking Americans, lower taxes and encouraging small business): the abandonment of the border tax. So low has the bar for legislative achievement been set, that dropping something considered by most informed commentators to be unworkable qualifies for muted celebration.

Pitiful Partisanship

The current habit of the two political parties refusing to work legislatively with each other began during the Obama administration when Obamacare was passed with no Republican support. This led to the so-called “do nothing” Republican Congress, which led to Obama’s frequent usage of Executive Orders, which in turn was followed by the refusal of the Republican-controlled Senate to start confirmation hearings for Merrick Garland.

Harry Reid initiated a change in Senate procedures in 2013 to allow vacancies for all executive branch nominees – including cabinet positions – and judges below the Supreme Court level to be confirmed by a simple majority rather than the 60 votes previously required. It was referred to as the “nuclear option” and, while it has certainly permitted easier confirmation for the majority party in the Senate, it has also undermined bi-partisan collaboration.

The prevailing climate in DC is that nothing can pass unless the Republicans can corral at least fifty votes, at which point the tie can be broken by the Vice President, Mike Pence.

The Media’s Daily Fix

The news media has become, it seems, addicted to the high drama of the political process. The sight of John McCain returning to the Senate floor after brain surgery for cancer to cast the decisive “no” vote for the third (maybe fourth or fifth) attempt to repeal and replace Obamacare, capped a week where the Senator from Alaska, Lisa Murkowski, was threatened by various representatives from the Whitehouse with repercussions for her state if she continued to vote “no”. The President continued to torment and disparage his attorney general; Sean Spicer’s putative replacement, Anthony (“the Mooch”) Scaramucci, unleashed profanity-rich comments about Reince Priebus and Steve Bannon; and finally, Reince Priebus was replaced as Chief of Staff.

This is all unseemly: behaviour unbecoming the people’s elected representatives, many of whom seemed so concerned with inflicting damage on their electoral prospects that they have forgotten what they were elected for in the first place.

What Next?

Presumably, the Senators will soon be released to their summer vacation, during which it will be hard for them to accomplish less than they have accomplished during the first seven months of this administration. When the House’s first version of healthcare legislation was defeated, the President said they would move on to tax reform. He then changed his mind and tried again with healthcare, and the baton passed to the Senate. That chapter has now closed and, while the President would clearly have settled for any bill at all to come to his desk, the only bill likely to arrive for his signature is the one authorising sanctions for his ally, Vladimir Putin. While he would seem to want to veto this, the prospects of an override – there are clearly enough votes to do that – will probably lead to this passing into law.

While it is tempting to conclude that there are structural impediments to Congress and the Senate working in a bi-partisan way – healthcare and taxes certainly suggest that is the case – the bill imposing sanctions on Russia garnered veto-proof majorities in both chambers, suggesting that, where there is a political will, there is a legislative way.

Back to Taxes

Taxes may be on deck for consideration and, if the rancour on healthcare is a guide, could suffer the same fate – dead on arrival. Summer can, however, be restorative – a little space to allow thoughts to wander and emotions calm. The first seven months of this administration – David Brooks of the New York Times describes it as having dropped a nuclear bomb on the basic standards of decency in public life – are widely considered to have been awful. There are signs, however, that the abject awfulness of the Trump/Scaramucci/Bannon approach may finally be unifying the Republicans, who have largely been complicit in enabling such behaviour, in saying “enough is enough”.

As detailed in an article written at the beginning of May this year, taxes are an important means of incentivising economic behaviour. Getting them right is key to removing frictions in the smooth functioning of a complex economy. Reading the statement published by the Big Six and comparing it with the one-page statement released in May, it appears little substantive progress has been made. Perhaps John McCain’s theatrical “no” vote will catalyse the grown-ups in both parties to ignore the chaos of a disorganised and incompetent Whitehouse and begin the process of collaborating to do the business of the people.

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