A Taxing Endeavour: Can Trump Succeed in Getting Through Tax Reform?

BY GEORGE BAILEY

President Trump has not had the best start to his presidency so far. An administration mired in an ever-growing Russia scandal and fresh off the disaster of its Obamacare repeal is now moving to tackle tax reform.  However not only will Trump have to deal with a fracturing GOP controlled Congress, already demoralised from the failed Obamacare repeal and a bitter Supreme Court battle, but also something he doesn’t like dealing with. Facts.

Putting aside the politics for a minute, Trump’s biggest issue is maths. The failure of the Obamacare repeal and its subsequent costs leaves tax reform on a $1 billion back foot before the process starts, making it nigh on impossible for Trump to achieve his goals. Trump promised in his election campaign to make sure any single person earning less than $25,000 or couple earning less than $50,000 would not pay income tax.  This would result in the removal of 50% of all households from paying income tax. This reform would come alongside the cutting of tax rates into 10%, 20% and 25% bands but also corporation tax from 35% to 15%. The elimination of the death tax was another key element to Trump’s tax reform and all of this is to be achieved while not adding a single penny to the debt. This plan seems oxymoronic coming from the party that champions fiscal conservatism and almost impossible to achieve with the extra $1 billion from Obamacare, let alone without it.

Numbers aren’t the only part of the problem tax reform faces, ideology is another part of the equation. One of the central issues surrounding this debate is border adjustability. This is an idea being proposed to the tax code which exempt exports from taxes while stopping imports being deductible from businesses’ tax bills. Border adjustability would provide $1 trillion over a decade as well as boosting domestic products, fitting well with Trump’s populist message of ‘America First’. This policy would hurt industries that have high imports such as the oil industry, which would prove to be a potent opposition to this reform. Free-market supporters also view border adjustability as a thinly disguised tariff and would push back against this idea. These ideological divisions only provide a more complex task for Trump and the GOP, making it less and less likely that tax reform will succeed.

But lets suspend disbelief for a second and say that the policy ends up being sorted out. There remains the issue of getting it through Congress. History shows us that the GOP’s current approach is deeply flawed but tax reform can be saved. Trump and the Republicans need to learn from history if they don’t want to repeat it and take a few tenets out of theocracy they’ve been touting since the 80’s. The Church of Reagan: Population: Republicans. For someone so revered, the GOP does not learn enough lessons from the Reagan era. The Reagan administration was the last time major tax reform was achieved and it was passed through a Democrat-controlled Congress, a feat deemed impossible by today’s standards. Reagan achieved this through 2 years worth of hard-fought negotiations, consultation with all wings of Congress as well as think tanks and other interest groups and consistent support and dedication from the White House. Whether or not you agree with the tax reforms Reagan passed, you cannot say that it wasn’t a masterpiece in both policy-making and politics.

Now 40 years on, Republicans need to start practising what they have been preaching about Reagan. This is where we bring the politics we left out at the beginning back into the mix. There are 3 different tax reform plans being floated at the moment (The President’s, the Speaker’s and the House’s) and if the GOP don’t learn from the Obamacare debacle and find a solution, which suits all sides, they are heading for the same result. Then they need to negotiate and compromise with the various elements of the Republican coalition, especially the emboldened ultra conservatives, as well moderate Democrats by using some of Trump’s famous ‘art of the deal’. This would result in a bill, which can smoothly pass into law in a year or two just before the midterms and would go to show the GOP can govern competently. But this would require too much self-reflection on behalf of the GOP who would rather attempt to blitzkrieg through poor legislation before people realise how terrible it is rather, than deal with their internal demons. The process would also take too much time and detail for Trump to be engaged in for very long as his only personal concern would be lowering the top band tax rates, which would conveniently go to benefit his own pockets. The ultra-conservatives smell blood in the water for the Trump administration and if Trump and the GOP can’t achieve a win on tax reform without giving into them, they will turn up the pressure on Trump and Ryan, which will make them desperate men.

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