The Prospects for Bipartisan Tax Reform Are Exceedingly Grim

by Reihan Salam

Now that the House majority has successfully pressured Senate Democrats to pass a budget resolution, we are starting to see movement on tax reform. Keith Hennessey offers a number of different scenarios for how a tax reform effort might proceed, depending on whether Democrats intend to pass a party-line bill or if they aim to secure Republican support:

The way to tell which they’re going to do is to look at what the upcoming Democratic budget resolution requires tax reform do on total tax levels. If, as Senator Schumer suggests, the budget resolution requires that tax reform increase total taxes by hundreds of billions of dollars (or even a trillion+!) over the next decade, then reconciliation isn’t just an option, it’s their chosen path. Senate tax reform that massively raises taxes will be a partisan positioning exercise that will not lead to a law, and Senate Democrats will need to use reconciliation to block a Republican filibuster. If the President and Senate Democrats want to try to enact bipartisan tax reform, they’ll have to make it revenue-neutral or nearly so.

Keith observes that congressional Republicans have demonstrated some flexibility in the recent past, a fact that he finds dismaying but significant all the same. Yet he finds it highly implausible that Republicans, including those most inclined towards a bipartisan deal, would countenance a tax overhaul that raises more substantially tax revenue than the post-cliff code, which is the explicit goal of the Obama administration.

Moreover, Keith argues that conservatives shouldn’t rely on the notion that the “dynamic effects” of a very well-designed tax overhaul will be enough to make up the difference between the position of Republican lawmakers and the the president and his allies regarding what constitutes an appropriate tax level, as dynamic effects would likely yield no more than $100-150 billion over the next decade even in a best-case scenario. If the Democratic Senate majority does pass a significantly revenue-positive tax reform bill on a party-line vote, they will have explicitly targeted some nontrivial number of voters for tax increases yet the bill will almost certainly die in the House.

This is why I am slightly more optimistic than Keith that Senate Democrats might be willing to seek a revenue-neutral bill in order to secure at least some Republican support. This would put considerable pressure on House Republicans to back the bill, pressure that will likely divide the House Republican Conference. And that is something the president seems very keen to do.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.