Trump, Taxes and the Democrats
President Trump is elated with the media applause for his new political condominium with Democrats Chuck Schumer and Nancy Pelosi, and it is amusing to see sudden praise from the same circles that claim he’s unfit for the Presidency. If Mr. Trump endorses Medicare for all, maybe they’ll put him on Mount Rushmore.
But anyone who thinks this really heralds a brave new world underestimates the current polarization in American politics. Democrats might be able to deal with Mr. Trump if the President embraces their agenda. But then he’s going to have a heck of a time getting anything through this Republican Congress. On tax reform in particular, there’s little potential common ground.
Recall that Mr. Trump didn’t negotiate with Democrats last week. Like a first-time home buyer, he accepted their first offer. His concession was mainly on process, delaying for three months a fight over government spending and the debt ceiling—as part of a $15.25 billion hurricane relief bill. Yet even that split the GOP, passing the House 316-90 and the Senate 80-17. All the nays were Republicans, who think Mr. Trump handed Democrats greater leverage for showdowns in December.
The December showdown will tee up another fight over the size of government. Does Mr. Trump think Mr. Schumer and Mrs. Pelosi will sign off on his spending increase for the Pentagon? Or steep cuts for the EPA? Even if Mr. Schumer were willing, the antipathy that grass-roots progressives feel for Mr. Trump won’t let Democrats compromise on much.
The same holds for tax reform, which Mr. Trump says is his top priority. Mr. Schumer and 44 Senate Democrats stipulated their conditions for tax cooperation in a letter this summer: No tax cut for the wealthy, no increase in the deficit, and no use of the 50-vote budget reconciliation process. Only three Democrats didn’t sign that letter: Heidi Heitkamp (N.D.), Joe Manchin (W.Va.) and Joe Donnelly (Ind.).
Yet Mr. Trump says he wants a large tax cut, including a corporate tax rate of 15% from the current 35%, and big tax cuts for “the middle class” and small “pass-through” businesses that pay at the individual tax rate. Democrats might go along with the middle-class tax cuts, but those won’t help the economy.
The lowest corporate tax rate that Barack Obama would consider is 28%, which isn’t nearly low enough to cause corporations to change investment plans. With Ireland at 12.5% and Britain headed for 17%, the U.S. needs to get to 20% to lift investment enough to spur growth to raise incomes. Will Mr. Schumer go along with that?
As for not adding to the deficit, that requires eliminating tax loopholes and using “dynamic” revenue scoring that assumes faster growth from the tax cut. Democrats aren’t likely to go along with either one. They want to raise tax rates on investment income, but that is also a growth killer.
The best chance to win Democratic support is if the GOP and Mr. Trump move to eliminate the state-and-local tax deduction. Then Democrats from high-tax states might want to deal on the corporate rate in a trade for retaining the deduction. But after routing Republicans on health care, Democrats for now seem to believe they can defeat tax reform simply by claiming it’s a tax cut for the wealthy.
Which means that if the President really wants Democratic votes on tax reform, he’ll have to prove first that he has 50 Republican votes to pass it in the Senate. Only then will Ms. Heitkamp or Mr. Manchin come along to pad the victory margin and neutralize a 2018 campaign issue. They’ll never agree to be the 50th vote to pass a bill because that would mean courting the wrath of anti-Trump voters on the left. They’d have to switch parties.
Mr. Trump has few policy convictions, and if Democrats win the 2018 elections we can see him cutting deals in the next Congress to blow out spending, impose price controls on drugs, raise tariffs on China, and maybe even Medicare for all. But if Mr. Trump wants tax reform in this Congress, he’ll need Republican votes. Chuck and Nancy won’t help him unless he surrenders to their vision of tax reform—which means a tax increase.
Appeared in the September 12, 2017, print edition.