The outlook for an ambitious Republican reform agenda is bleak at this point, to put it mildly. The GOP effort to repeal and replace the Affordable Care Act (ACA) foundered in the Senate. The president’s budget plan is already long forgotten, filled as it was with fanciful assumptions and implausible policies. The chances of a GOP-written budget plan with significant spending and tax cuts making it through both the House and the Senate are slim. Even tax reform on its own looks less and less likely, as the main players continue to utter only the vaguest generalities about what they have in mind.
It didn’t have to be this way. Republicans have driven their agenda into a ditch through a combination of inexperience, overconfidence, and an ill-advised legislative strategy. They bet everything on their ability to pass a series of highly controversial bills through Congress, one after the other, with just Republican votes. That was a fatal mistake.
In November, they thought they would pass a repeal-only health-care bill by January or February with just Republican votes, which would then give them time (perhaps a year or two) to pass additional legislation replacing what was repealed with different provisions. But it was never likely that a repeal-only plan would pass, because of the anxiety it would cause to people getting subsidized insurance through the ACA.
After wasting the two months following the election on that doomed plan, GOP leaders then switched gears in late January and said they were going to pass a full repeal-and-replace plan — again with just Republican votes — by spring or early summer, even though they had done very little to build consensus among Republicans on what should be in a replacement plan. They planned to pass a tax bill quickly after completing health care, followed by an infrastructure plan. They were going to do all of this despite holding just 52 seats in the Senate, which means they can’t pass anything through the upper chamber if there are three or more Republican defections.
Lo and behold, the Senate failed to pass a health-care bill last month because at least three Republicans opposed every variant of repeal and/or replace that Majority Leader Mitch McConnell put before them.
Now the Trump administration and Republicans in Congress are embarking on an effort to pass either deficit-neutral tax reform, which would mean politically treacherous decisions to eliminate popular tax breaks, or a large tax cut that would increase the federal budget deficit by trillions of dollars over the coming decade, again with just Republican votes. Nothing that has taken place since January would indicate the GOP can deliver either plan to the president’s desk.
The new administration, working alongside allies in Congress, could have set in motion a very different legislative plan with a better chance of success earlier this year. That plan would have sought as its sole objective enactment by the August recess of a single reconciliation bill containing the most achievable and worthwhile tax and entitlement reforms Republicans are seeking. The key to making such a plan work would have been the development of a coherent budget plan in Congress, preferably based on clear and detailed ideas from the president’s budget submission, followed by a comprehensive reconciliation bill that combined many disparate tax and spending provisions into one piece of legislation.
The new administration, working alongside allies in Congress, could have set in motion a very different legislative plan with a better chance of success earlier this year.
In the first year of a presidency, this kind of legislation, if assembled correctly, often generates a great deal of support, because it becomes identified with the changes that a new president was elected to pursue. Of course, it was more challenging for the Trump administration to pursue such a plan because Trump’s campaign didn’t offer any detailed policy ideas. The incoming team essentially had to start from scratch when assembling its agenda beginning in January. And the budget they put together was so unrealistic as to be an ill-suited starting point for a credible budget plan in Congress.
Still, it would have been better for the administration and the GOP Congress if they had taken the time necessary at the beginning of the year to put together a fiscal plan that was logical and achievable and could set in motion a budget-reconciliation bill that would pass.
The overall objective should have been deficit reduction on a scale that sounds impressive but is well within reach — say, a bill aiming to cut the deficit by $1 trillion over the next decade. This could be achieved through a combination of doable entitlement reforms and a freeze on or slight decrease in spending caps for non-defense discretionary accounts. The bill’s entitlement reforms could include provisions to roll back some elements of the ACA and replace them with less expensive alternatives, as well as realistic and measured changes to Medicare, agricultural programs, and federal employee benefits. Its spending reforms could also include inexpensive improvements to veterans’ benefits, a small infrastructure investment, and additional training and support for workers who have lost their manufacturing jobs in recent years. The various adjustments in spending programs could then be combined with a tax package that lowered rates as much as could be accomplished with the revenue raised by eliminating wasteful tax breaks.
This is the kind of legislation that has something for everyone to like, and dislike. There are tax-rate cuts, loophole closures, spending cuts, and benefit improvements for politically important groups. Such a bill would be very difficult for a Republican in Congress to vote against. It would necessarily be much more incremental than the combination of a full ACA repeal-and-replace plan and comprehensive tax reform, but it would be far more achievable too.
A partial model for this approach is legislation Bill Clinton pushed through Congress in 1993, his first year in office. Called the Omnibus Budget Reconciliation Act of 1993, or OBRA, it contained most of the important agenda items of Clinton’s first term, including tax increases, expansions of the Earned Income Tax Credit, student-loan liberalization, a new vaccine program for children, cuts in payments to hospitals and other providers serving Medicare patients, and expansions of other federal income-support programs. Mainly through tax increases, it reduced the federal budget deficit in the ensuing years.
Clinton has always pointed to the 1993 legislation as the foundation of his economic program. When he ran for reelection in 1996, the economy had expanded at an average annual rate of 3.5 percent since the beginning of his term, and he pointed to the law he passed in his first year as the primary reason for the strong growth. Of course, the economy was already growing crisply when Clinton came into office in 1993, and steady growth was likely to continue if OBRA had not passed. But in political terms, that didn’t matter, because Clinton was able to make the connection between the policies he pushed as president and the strength of the economy that voters felt and observed. He sailed to a comfortable reelection.
The OBRA legislation is an imperfect model for what Republicans ought to have done this year because Clinton passed it with just Democratic votes. There were 56 Democratic senators in 1993, and six voted against the bill. Senator Bob Kerrey was a reluctant “yes,” allowing Vice President Al Gore to break a 50–50 tie and send the bill to the president. The legislation was signed into law in August 1993.
Republicans have a much narrower margin in the Senate than Clinton did in 1993, which means they should bend over backwards to make their legislation attractive to at least a few Democrats. That would give them more maneuvering room to lose a few votes and still get something passed. Attracting Democrats would require concessions, of course, some of which would be painful. But the result would be a bill containing perhaps 60 or 70 percent of what Republicans are trying to achieve, and it would pass.
At this point, there probably isn’t that much that can be done to salvage the GOP’s legislative agenda. The controversies of this presidency have made bipartisan cooperation all but impossible, and there is not enough unity among Republicans to pass politically charged legislation on a partisan basis. Still, given where things now stand, the GOP doesn’t have much to lose by trying something different. It should abandon the idea of massive, sequential, partisan bills and start over with an approach that provides a fighting chance of passing one bill with meaningful reforms.
— James C. Capretta is a resident fellow and holds the Milton Friedman chair at the American Enterprise Institute.