Both parties opposed a slightly higher corporate rate to help the working class.
Tell me if this scenario sounds familiar: Two Republican senators concerned with rising tax burdens on families propose a child tax credit (CTC) that would be refundable against both income and payroll taxes. Party leaders tout the plan as evidence of their pro-family bona fides and include it in their larger tax plan.
Business groups soon realize that the cost of the tax credit will hinder their ability to get the large business-tax cuts they seek and quietly push party leaders to drop the provisions allowing families to apply the credit against their payroll-tax liability. The Wall Street Journal cheers them on. Angry pro-family groups accuse them of selling out working-class families to appease wealthy donors, but their complaints are ignored.
The scenario I just described played out over two decades ago, when Senators Rod Grams (R., Minn.) and Dan Coats (R., Ind.) spearheaded efforts to introduce a refundable child tax credit as the “crown jewel” of the Republicans’ famous Contract with America in 1995. They recognized that the primary tax burden on working-class families came from payroll rather than income taxes, making refundability crucial to providing tax relief to those who most needed it.
According to an internal staff memo written at the time, this provision became a point of contention in a larger “battle between family tax relief and business tax relief,” which made it “vulnerable to the wandering eyes of Senators who wish to beef up aspects on side of business tax relief.” Every dollar directed to refundability meant a dollar less to put toward reducing what they saw as an onerous capital-gains tax rate.
Business groups were making a fair point at the time. Sixty-five percent of the Republican tax package was aimed at families, while only 35 percent was aimed at businesses. Grams and Coats acquiesced on refundability as a modest compromise. Business groups pressured Congress to shrink the CTC even further, but a bipartisan coalition of pro-family social conservatives and anti-poverty liberals worked together to staunchly defend it. The result was the introduction of a wildly popular $500 child tax credit as part of the Taxpayer Relief Act of 1997.
Fast forward to 2017. Senators Marco Rubio (R., Fla.) and Mike Lee (R., Utah) have picked up where Grams and Coats left off. Seeking to fulfill the promise made by Republicans in the Contract with America, they have led efforts to increase the value of the CTC and make it refundable against payroll taxes, as originally intended. Like clockwork, business groups have set out to undermine Rubio and Lee, seeing the CTC proposal as a threat to business priorities such as corporate tax cuts.
The key difference is that the current tax bill has swung the family-business pendulum hard in the other direction, with businesses receiving 70 percent of the tax relief and families receiving only 30 percent. Recognizing the problem, Rubio and Lee filed an amendment to remedy this imbalance. It would have made the proposed $2,000 CTC refundable against both income and payroll taxes and paid for it by reducing the corporate income-tax rate from 35 percent to 21 percent instead of the planned 20 percent.
This modest compromise — a mere percentage point for families — would have provided the meaningful tax relief many working-class families were denied over 20 years ago and still left the U.S with the lowest corporate tax rate in North America. Nevertheless, business groups became apoplectic.
The only hope for working-class families was that the same unlikely team of pro-family social conservatives and anti-poverty liberals who had worked together to introduce the CTC back in 1997 would rally around the Rubio-Lee amendment.
The Senate could have put families first. Instead, it put politics first.
Evangelical leaders could have reminded Republicans that they were elected to work on behalf of the working and middle class, not the donor class. Anti-poverty liberals could have pushed Democratic senators to support the Rubio-Lee amendment even if they would vote against the final tax bill later. The Senate could have put families first. Instead, it put politics first. The Rubio-Lee amendment was defeated, 29–71. It was a bipartisan slap in the face to families.
Rather than reduce corporate tax cuts by 1 percentage point for families, the Republican leadership chose to champion the interests of their donors. Rather than make a principled effort to help their struggling constituents, the Democratic leadership chose to actively oppose good changes to embarrass the Republicans.
The coming days will be filled with debates about who is responsible for the major flaws in the tax-reform bill. One thing is clear, though: The shameful failure of Republicans and Democrats to work together is responsible for the absence of CTC reforms that would have put the needs of the working class over those of the donor class.
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