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March 29, 2017

ObamaCare Repeal Failure Makes Tax Reform Harder

The GOP majority is worthless if it can’t work together to accomplish its larger goals.

Less than a month after taking office, Barack Obama signed the “stimulus” bill, an $800 billion pork-filled progressive goodie bag. Within a year he was bragging about the GM bailout and ironically named Affordable Care Act, better known by its pejorative moniker, “ObamaCare.”

With time those accomplishments became an albatross. The massive stimulus bill stimulated nothing but the pockets of well-connected Democrat donors. GM and Chrysler went bankrupt anyway.

More than anything else, it was the disaster of ObamaCare that led Republicans to electoral victory, securing their strongest political position in nearly a century on promises of repealing ObamaCare.

That is why the optics of what happened last week — the failure of the GOP’s ObamaCare repeal bill to even get a vote in the Republican-controlled House — was such a disaster. For nearly a decade the GOP promised the full repeal of ObamaCare if voters restored them to power. In 2010 the voters gave them the House, in 2014 the Senate, and in 2016 the White House. And with what to show for it?

There are two significant concerns with what happened; the substance and the optics. As a matter of substance, what happened was in many ways as the Founders intended. They gave us co-equal branches, separation of powers, and checks and balances. The branches were intended to be in tension in order to negate usurpations of power. The House negotiated with the Senate, the Senate with the House, and both with the White House.

But in the end, rather than agreeing to a compromise bill, congressional Republicans dealt their new president an embarrassing public relations blow. For a man known as the master dealmaker, this was the worst possible outcome, and it’s likely to have repercussions.

The brunt of the blame is being heaped upon the House Freedom Caucus, a group of the most conservative lawmakers. The Wall Street Journal dubbed the repeal failure the “Freedom Caucus’s Obamacare preservation act.” This isn’t entirely unfair. While caucus members expressed legitimate concerns as to whether the GOP’s bill went far enough in fully repealing ObamaCare, as a practical matter, blowing it up may damage their cause in the long run.

President Donald Trump now says he will move on to tax reform.

Unlike Obama, Trump does not have the luxury of filibuster-proof majorities in Congress to start his presidency. Republicans have a comfortable margin in the House but only a two-vote majority in the Senate, which is why it was critical for the GOP to hand Trump an early legislative victory to build momentum, both for Trump and for the party. As the WSJ also notes, “The risk now is that the health failure will make the GOP Congress even less cohesive and less likely to follow its leaders. Freedom Caucus Members sit in safe seats and don’t need achievements to win re-election.” And Democrats, emboldened in their efforts to obstruct the Trump/GOP agenda, will feel less pressure to compromise.

As Trump and the Republicans turn to tax reform, the same obstacles remain; conflicting visions between the conservative and moderate/liberal wings of the GOP. Do Republicans pursue steeper, front-loaded tax cuts in favor of a slower initial reduction of the national debt? Revenue-neutrality or spending reductions? Middle class tax cuts (as Trump promised), or tax cuts for the wealthy/business class to stimulate broader economic growth (as preferred by Speaker Paul Ryan)? And they still have to deal with obstructionist Democrats.

And make no mistake; tax reform is desperately needed. The U.S. has the highest corporate tax rate in the industrialized world at 39.1%, and a tax code that clocks in at 2.4 million words, more than three times as many as the King James Bible. Compliance with that monstrosity costs Americans $234.4 billion per year. We routinely lose businesses to more favorable tax environments like Ireland and Canada, and the investment capital and jobs go with them.

Likewise, high personal income tax rates mean less money for consumers to spend and invest, which leads to less personal savings, slower job creation, and less economic growth. Millions of small businesses file revenue under personal income taxes and face a top rate of 43.4%, reducing their ability to create jobs. As “red” states have proven, tax cuts boost the economy.

Success is possible based on the record of state and local Republicans, but the national GOP has to get on board. Charles Cooke of National Review points out, “At the state level, the GOP has been remarkably effective at ushering in reform over the last seven years; at the federal level, by contrast, it has been able only to hold the line.”

As Republicans move to take on tax reform, there will be plenty of disagreements on policy that will need to be resolved, from top marginal rates to tax credits to the controversial “border adjustment” tax. In order to resolve these conflicts, Republicans have to avoid a purist approach and negotiate with one another. Better to get a half loaf today and come back for another bite tomorrow than go home hungry.

The moderates need to understand that standing on principles — Rule of Law, individual liberty, limited government and personal responsibility — is important. Conservatives have to concede that a large number of elected Republicans don’t hail from the solidly-conservative Deep South, and they will not keep their seats in places like Colorado and Maine and New York if they take a hardline approach. The perfect cannot be the enemy of the good. And as frustrating as it is for conservatives to not get provisions they want, they will be even more frustrated if President Trump decides to shun them and work with moderates and Democrats. Each group is needed to maintain a majority, and that majority is worthless if it can’t work together to accomplish its larger goals.

Republicans will either learn quickly from the recent debacle, or their time in power will be short-lived.

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