How Republicans rallied together to deliver a $1.5tn tax cut

Despite bullish mood, Bill represents a political and economic gamble for Republicans

The sting of failure on healthcare still lingered in the Senate on August 3rd, when Mitch McConnell, the majority leader, summoned the Republican members of the budget committee to his office. They needed to pass a tax bill that autumn, McConnell told his colleagues, and they needed a budget that allowed them to do that.

There was no dissent. Within two months, party leaders had hammered out a budget that steamrolled their previous concerns over adding to the federal budget deficit, in order to pave the way for $1.5 trillion in tax cuts. In rapid order, the budget passed the Senate, then the House, putting Republicans on track to deliver a tax Bill at breakneck speed to President Donald Trump’s desk by Christmas.

The $1.5 trillion Bill represents the most sweeping overhaul of the US tax code in decades, delivering deep and permanent cuts to corporations and temporary tax cuts to individuals. Early on Wednesday morning, Republicans claimed victory as the Senate voted 51-48 to pass the Bill, which the House passed on Tuesday 227-203.

But in many ways, the Bill represents a political and economic gamble for Republicans. A majority of Americans oppose it, and relatively few believe they will benefit personally from it, polls show. Economic analyses predict it will add more than $1 trillion to budget deficits over the next decade, an amount that would betray the party’s long-standing messaging that mounting federal debt will sap economic growth.


Animating ideology

Republicans spurned those concerns, rallying around what has been the animating ideology of their party since the Reagan era: that tax cuts will drive faster growth and national prosperity. More immediately, they followed an overwhelming desire to notch a legislative “win” for the president, their donors, the restless voters of their party base and for their own political fortunes.

There were crucial steps that ensured passage, including a deficit bargain struck between senators Patrick Toomey and Bob Corker in September, pressure from Trump on a controversial push to tweak retirement savings in the Bill and, in the Senate, an early and crucial endorsement from John McCain of Arizona, the Republican wild card whose late defection killed the healthcare Bill.

“There was never a moment where I thought, ‘Oh, my gosh, we’re going to fail at this,’” Toomey said in an interview. “There were many moments I thought, ‘This is still an open question.’” What there never was, in the minds of Republican leaders, was doubt the Vill would pass – not even in the scattered moments over the past several weeks when individual senators held it up to demand changes.

“At the end of the day,” McConnell said in an interview, “I didn’t have a single person say, ‘If you don’t do this, I’m going to vote no.’”

The House approved the final version of the Bill on Tuesday afternoon over the opposition of 12 Republicans and every Democrat who cast a vote. Because of a procedural issue, the House will have to vote again on Wednesday, but the Bill is expected to land on Trump’s desk within days.

On the House floor, speaker Paul Ryan’s voice cracked as he signalled victory. “My colleagues, this is a day I’ve been looking forward to for a long time,” Ryan said on Tuesday, in teeing up a vote he had worked toward his entire career. “Today, we are giving the people of this country their money back.”

Into the paycheques

To get to that moment, Republicans walled themselves off from criticism, convincing one another that unfavourable economic analyses of their Bill were wrong, and that its poor poll numbers would improve once the cuts worked their way into Americans’ paycheques.

The schedule minimised time back home for members, allowing them to largely avoid the contentious town hall meetings that helped sink their efforts to repeal and replace the Affordable Care Act (also known as Obamacare). They caught a break when Democrats reached a deal with Trump to keep the government open in early autumn, freeing up valuable legislative time to push the tax Bill forward.

Trump pushed party leaders again and again to deliver a Bill quickly, and for the most part, he let them write it, intervening only to push for a low corporate rate and to nix an idea to meddle with tax-advantaged retirement plans. At times, the president would briefly derail the process with stray and unexpected Twitter posts that sent lawmakers and his own staff scrambling to reconsider major parts of the plan.

In the end, the Bill met nearly every deadline in an “optimistic” timeline party leaders prepared in early October. That timeline called for House and Senate votes on a conference committee Bill to take place on on December 18th. It was off by a day.

Ryan and other Republican leaders have laid the groundwork for a large tax Bill for years, but their efforts stalled in the early months of the Trump administration, as the party engaged in a high-visibility effort to dismantle President Barack Obama's signature health law. That effort crashed to the ground in the early hours of July 28th, when McCain and senators Lisa Murkowski of Alaska and Susan Collins of Maine broke from their Republican colleagues in a dramatic late-night defeat for party leaders.

Republicans took fire from the party’s base, which had voted for Republicans in large part over healthcare concerns, from conservative donors and from the president himself. Congressional aides said that criticism galvanised lawmakers, almost immediately, to rally behind what at that point was still only the broad outlines of a tax plan – but which McConnell and others saw as the key to appeasing furious Republican voters.

A single goal

A congressional aide said the healthcare failure united Republicans toward a single goal: tax cuts. At the time of the healthcare collapse, Republicans had made little public progress toward a tax Bill, and it appeared on the back burner.

The White House had released a one-page memo in April outlining its priorities. The House Ways and Means Committee chairman, Kevin Brady of Texas, a low-key business advocate better known for his work on healthcare, had put forth a tax-reform framework. But conservative groups had spent months killing one of its core provisions, a so-called border adjustment that would have effectively taxed imports, raising an estimated $1 trillion over a decade to help offset the revenues lost from reducing tax rates.

When Brady and Ryan officially abandoned that provision in late July, Republicans faced a difficult question: How would they raise enough revenues in a tax Bill to ensure they did not add further to the federal budget deficit, after complaining throughout the Obama administration that deficits and debt were choking the economy?

The answer was, they did not. This was the first critical decision Republicans made to keep on their accelerated timeline: they embraced a budget that allowed for much higher deficits, on the assumption that their tax cuts would generate enough new growth and revenues to pay for themselves.

A few senators voiced concerns about the possibility of adding more to the debt. They included Corker of Tennessee, a member of the budget committee, who announced this year he was not going to run for re-election and got into a public Twitter fight with Trump.

Corker was one of the committee members who gathered in McConnell’s office in August and were charged with writing a budget document that would accelerate passage of the tax Bill. Congressional leaders and administration officials had already agreed to utilise the budget reconciliation process, which would allow them to bypass a Democratic filibuster in the Senate and approve a Bill entirely on party lines. To do that, they needed a budget, which would include a limit on how much the tax cuts in the Bill could add to the budget deficit over the next decade.

$1.5 trillion limit

Many senators, led by Toomey, wanted a $2.5 trillion limit, which was less than Trump had proposed in his campaign tax plan but would all but ensure an immediate return to $1 trillion a year deficits. At McConnell’s request, Toomey negotiated for weeks with Corker, and they eventually compromised on a $1.5 trillion limit. Toomey convinced many of his colleagues, including McConnell, that the Bill could easily produce enough growth to offset those lost revenues – an estimate that no detailed economic analysis of the Bill has yet supported.

The final negotiations this month were entirely between Republicans. The Senate version of the Bill largely won out, but House leaders pushed, successfully, for an immediate cut of the corporate rate, which was raised slightly to 21 per cent from 20 per cent, and for a reduction in the top individual tax rate to 37 per cent.

Negotiations completed, Republicans congratulated each other for what they remain convinced will be seen as a landmark legislative victory. On Tuesday, a few hours before the final Senate vote on the Bill, McConnell acknowledged that Democrats believe the Bill will spark a backlash that could determine control of Congress.

“They must believe it must be a political winner for them,” he said. “We believe it’s a political win for the country, and thus, it’s going to be good for us. So we’ll take it to the country and see what happens in 2018.” – New York Times