• Allon Advocacy

Tax Reform Becomes a Reality

After nearly one year of relative legislative inaction on high-profile issues ranging from healthcare to immigration, many pundits – including yours truly – dismissed outright the notion that the Republican Congress would be able to unite behind President Trump’s call for a comprehensive tax reform bill to be delivered to his desk by Christmas. In a year punctuated by spats between the White House and both Senate Majority Leader Mitch McConnell (R-KY) and House Speaker Paul Ryan (R-WI), it seemed highly improbable that a fractured Republican Party could come together in the span of just a few months to pass the most sweeping changes to America’s personal and corporate tax codes in 30 years. And yet, that’s precisely what the GOP did this week.

Following passage of a comprehensive tax reform bill by both chambers of Congress this week, President Trump will sign into law a bill that will:

  • Reduce the corporate tax rate to 21%;

  • Increase the deductibility of a portion of income for pass-through businesses;

  • Reduce most overall federal personal tax rates;

  • Double the standard deduction;

  • Impose significant limitations on the deductibility of mortgage interest and state and local income tax and property tax, particularly for residents of high-tax states; and,

  • Eliminates the individual mandate under the Affordable Care Act.

The enactment of tax reform into law has been a huge priority for Congressional Republicans for the last 20 years, and has long been Speaker Ryan’s personal Moby Dick. The Speaker, who never sought the leadership role into which his colleagues drafted him following former Speaker Boehner’s resignation, instead coveted the chairmanship of the House Ways and Means Committee, so that he could shepherd tax reform into law.

Though elected Republicans in Washington were riding high at a White House ceremony yesterday afternoon celebrating passage of the bill, politically, there is reason for them to be nervous. A CNN poll taken within the last week found that 55% of Americans oppose the tax bill that Congress has just sent to the White House for the President’s signature, up a full ten points from 45% who were opposed this time last month. On the day that Congress passed the Affordable Care Act – President Obama’s signature legislative achievement – into law, 39.9% of Americans approved of the bill and 51.4% of Americans opposed it. The tax reform bill passed this week by both chambers of Congress, which President Trump will sign into law as early as tomorrow, is therefore fully four-and-a-half points more unpopular than Obamacare was at the same stage of enactment. Opposition to the healthcare reform bill, which bred the rise of the Tea Party, is widely viewed as the primary driver behind the Republicans’ capturing a majority in the House of Representatives in November 2010 and in the Senate four years later.

This is just one reason why the Democratic Party is bullish on its prospects to do very well in next year’s midterm elections. On a generic Congressional ballot, Americans currently prefer a Democrat candidate to a Republican candidate by 13 points. Combined with President Trump’s net approval rating of -18, net favorability rating of -19, and victories this year in Virginia’s and New Jersey’s gubernatorial elections and the special election to fill one of Alabama’s Senate seats, Democratic staffers and operatives have begun to believe, even if only privately, that the party could flip 23 or more seats next November and take back the House. And, although the Senate map is extremely difficult for Democrats in 2018 – they’ll be defending 26 seats while the Republicans will be defending only eight – the retirements of Senators Corker (R-TN) and Flake (R-AZ) have some believing that the Republicans’ one-seat majority in the Senate may be in jeopardy next year.

Politics aside, Republicans are not quite out of the woods yet with regard to must-pass legislation. Though some will still no doubt be nursing headaches from their White House tax reform celebration yesterday, GOP leadership in Congress must now quickly pivot to once again passing a resolution that will keep the federal government running after midnight tomorrow. You may recall that Congress passed a two-week extension of government funding earlier this month, in the hopes that negotiations during those two weeks would lead to a longer-term spending bill that would fund the government through the end of the fiscal year. With so much time and energy spent on tax reform, no such deal on government funding was reached. Accordingly, Speaker Ryan and Leader McConnell are likely to seek another short-term spending resolution that will keep the federal government open until some point in January to buy themselves more time for long-term spending negotiations. Though some within their own party are grumbling about having to vote once more on a short-term bill, most will likely be overtaken by the most intoxicating scent in Washington and fall in line: the smell of jet fumes just before Christmas.

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