If there’s one thing that’s united Republicans since the Reagan era, it’s enthusiasm for tax cuts. But these days one gets the unmistakable impression that the Laffer curve dream has died. For one thing, the Trump administration has reportedly abandoned the ludicrously large tax cut the president campaigned on last year. And in an interview with the Financial Times, U.S. Treasury Secretary Steve Mnuchin has acknowledged the obvious, namely that it is vanishingly unlikely that Republicans in Congress will pass major tax reform legislation by August. There will be no big tax cut in Donald Trump’s first 100 days. There probably won’t be one in the first 1,000 days either.
Before you blame Democratic intransigence, as GOP diehards no doubt will do, keep in mind that Republicans could make use of the budget reconciliation process to pass a tax bill on a party-line vote if they’re so inclined. No, the problem is that while Republicans might agree on the virtues of tax-cutting in theory, they’re finding it awfully difficult to craft a tax overhaul they can agree on in practice. And if Republicans can’t agree on tax cuts, well, what can they agree on? It’s no wonder some are calling Trump a do-nothing president who will offer his supporters little more than symbolism.
What’s behind the GOP’s tax impasse? Republican lawmakers find themselves in a moment of ideological flux. Between 2008 and 2016, the highest-income white voters went from being far more likely to vote for the Republican presidential candidate than the average white voter to being far less likely. You could dismiss this as no more than a blip—a reflection of the fact that well-off professionals found Donald Trump to be an especially noxious figure—but the trend was already visible in 2012, when Mitt Romney, famous for being a wealthy white man, fared less well than Barack Obama among wealthy whites. The result, as Luke Thompson has argued in National Review, is that Republican leaders find themselves confronted with new class divisions within their coalition.
And as the coalitional deck is shuffled and reshuffled, we can expect that positions Republican lawmakers have embraced for years won’t be the ones they’ll take a few years hence. Imagine a world in which Democrats continue to gain ground among high-income, college-educated voters in affluent suburbs while Republicans make further inroads among blue-collar whites in the Rust Belt. Would the tax policies championed by the Club for Growth and Americans for Tax Reform necessarily be the best fit for this new GOP? Might new pressure groups emerge that will champion new priorities, such as using the tax code to give working- and lower–middle-income families more of a leg up?
We’ve already seen a hint of intra-GOP class tensions in the ongoing health reform imbroglio. To Paul Ryan and his allies, the chief goals of Obamacare repeal-and-replace legislation were to cut taxes and spending levels, very much in keeping with the party’s ideological consensus during the Obama years. The American Health Care Act delivered on both priorities. It also threatened to drastically reduce the number of Americans with insurance coverage. Instead of concluding that you can’t make an omelet without breaking some eggs, rank-and-file Republicans rebelled, mostly because of a groundswell of grass-roots opposition.
In just a few weeks, the GOP has gone through a remarkably quick, and almost entirely unacknowledged, ideological transition on health policy. The House Freedom Caucus, zealous defenders of small-government orthodoxy, embraced the idea of using means-tested premium subsidies to expand insurance coverage. That’s a big leftward shift relative to where they started. Republican moderates, meanwhile, seem increasingly reluctant to talk about repealing Obamacare at all.
This shouldn’t come as a surprise. Once social programs are passed into law, it is famously difficult to undo them. But the fact that the GOP has evolved into a cross-class coalition with an increasingly blue-collar flavor is clearly playing a role. If Republican lawmakers are going to replace Obamacare, they’re going to have to make sure that it covers almost as many people, because if it doesn’t, there’s going to be hell to pay from newly minted Republicans.
Which leads us back to taxes. There is no clamor among GOP voters for soak-the-rich policies. But there’s no burning desire to slash taxes for the rich either. If the GOP is to succeed as a cross-class coalition, it will need a new playbook on taxes—one that can help cement the loyalties of new and old Republicans alike, and that might help win over some converts. A good starting point would be with a policy the GOP leadership already embraces: eliminating, or at least curbing, the state and local tax deduction (SALT), a deduction that tends to benefit higher-income households. Paul Ryan likes the idea. So do the anti-tax activists at the Club for Growth and Americans for Tax Reform, as Bloomberg Politics reports.
Why do they like it? Part of it is simply that if tax reform is going to lower corporate taxes (for example), it will need to raise revenue elsewhere. Eliminating the SALT deduction would yield $1.3 trillion over the next decade, which could go a long way toward filling any revenue shortfalls. Limiting the value of the deduction to $6,000 would raise $870 billion while leaving households earning less than $100,000 virtually untouched. Conservatives are particularly drawn to eliminating the SALT deduction because they see it as a sop to high-tax states. In its current form, the SALT deduction benefits lots of affluent two-earner households living in high-tax states like New York, New Jersey, and California—in other words, it benefits millions of rich Democrats.
If Republicans were truly shrewd, they might consider eliminating the SALT deduction and using the revenue to finance not corporate tax cuts (there are other ways to improve the corporate tax code) but a new, more generous refundable tax credit for families with children, like the one proposed by the sociologist Joshua McCabe. The basic idea is that policymakers would consolidate today’s confusing welter of existing tax benefits for parents and children—such as the child tax credit, dependent exemption, child and dependent care tax credit, head of household filing status, and the children’s portion of SNAP—into a unified refundable child tax credit (RCTC) worth $2,500 for households earning up to $110,000.
While this might sound like a relatively modest change, McCabe’s RCTC would in fact be a huge boon for low- and middle-income parents. Right now, the various tax breaks for parents are worth more for better-off households than the poorest households for the obvious reason that better-off households pay more in federal income taxes. The RCTC would level the playing field. More controversially, it would do so by giving low-income households that earn too little to pay much in federal income taxes money they could use to meet their living expenses. It’s easy to see some on the right attacking the RCTC as little more than a handout. As McCabe argues, however, it’s best understood as a way to help get poor families out of poverty and into the middle class.
What might this new RCTC cost? It’s hard to say exactly. Last year, the left-of-center Rediscovering Government Institute estimated that their somewhat similar proposal for a universal child allowance would cost $109.3 billion a year on top of current policy. McCabe’s proposal would almost certainly cost less by shifting some of the money that now goes to SNAP into the new RCTC. For example, a pared-down proposal for a universal child benefit devised by Samuel Hammond and Robert Orr of the right-of-center Niskanen Center would cost $59 billion more than the status quo. Even if we go with the higher cost estimate, an expanded child benefit would be in roughly the same ballpark as the cost of the SALT deduction.
Consider the politics of swapping a tax deduction that helps well-heeled professionals for a refundable credit that helps cash-strapped parents pay for diapers and child care. My guess is that the Club for Growth and Americans for Tax Reform wouldn’t be thrilled. But Republican voters, both new and old, just might be. The GOP has been trending toward becoming the party of blue-collar white voters for years, and though Trump might have accelerated the process, chances are it’s not going to end with him. Whether it’s now or in the near future, Republicans have no choice but to rethink what it means to be the party of lower taxes while also being the party of the (white) working class. A Great Tax Swap would fit the bill.