Tax Reform – The Politics (Part I)

Now that the dust is settling on the Presidential election and the Trump Administration is taking form it behooves all of us to look at how the new Administration and the Republican majorities will shape the economy. The single major force in that discussion will be tax reform and what it will look like in the coming months.

First you have to look at the underlying ideology that both Republicans and Democrats have when it comes to taxes. Republicans believe that government should tax the citizens to raise money for the essential services that government is mandated to provide. If you go to the Republican Conference in the House of Representatives you will find the following on their website:

“The money the government spends does not belong to the government; it belongs to the taxpayers who earned it. Republicans believe Americans deserve to keep more of their own money to save and invest for the future, and low tax policies help drive a strong and healthy economy”

This has been the Republican mantra for decades they will now be tasked with crafting a tax reform bill the implements that belief.

Democrats have a different view of tax policy. They believe that if you raise certain taxes you will be able to provide for government spending which will generate business and jobs. They are Keynesian devotees who advocate government spending to stimulate the economy. As a party Democrats tend to craft plans that will tax corporations and those who they call the “wealthy” and provide benefits for the middle class and the needy.

So now we are to the point where Congress will have to start negotiating with the new Administration on how to implement tax reform and then debate among themselves on what can pass. If it were left to the House the Republicans have a strong majority and they can pass just about any bill that they put forward. But the rules of the Senate make that impossible.

[The rules of the Senate have always allowed for unlimited debate and it was not until 1917 that Rule 22 was put in place to invoke what is known as cloture (ending debate) with a vote of two-thirds of the Senate. This was changed in 1n 1975 to only require three-fifths of the Senate. This is what is meant when you hear people say it takes 60 votes for anything of importance to pass in the Senate. ]

To pass any major tax reform Republicans will have to negotiate with Democrats and bring at least 8 of them over to their side. That will mean including provisions that will entice those Democrats to support any tax reform bill. But make no mistake; they will never bring the majority of Democrats in the Senate to support their plan so they will have to be judicious in what they are willing to offer to gain that magic number of 60 votes.

So who are these Democrats that might support a tax reform policy crafted by a Republican majority and a Republican Administration? They are the ones that might be fighting for their political lives in the next election and therefore would be willing to compromise in an effort to save their own seat.

Joe Manchin, Claire McCaskill, Heidi Heitkamp, Jon Tester and Joe Donnelly are five Democrats that are up for election in 2018. They are also from states that Donald Trump won and in some cases with pretty good margins. Joe Manchin has always shown a penchant to try and find compromise positions where he could join Republicans in passing legislation that he believes will benefit the people of West Virginia and Americans in general. Claire McCaskill is more interesting. She becomes more conservative as she had geared up for reelection in the past only to fall back into the liberal camp once elected. Heidi Heitkamp won a razor thin election in 2012 and will certainly be considered vulnerable in 2018. Trump carried the state with 63%. In Montana Jon Tester won with less than 50% in his last election and Trump carried the state with 56%. That leaves Indiana and where Joe Donnelly won with 50% against a divided Republican party after Richard Mourdock defeated Dick Lugar.

That would still leave the Republicans short of the magic number of 60. That means they will need 3-4 more Democrats. Some that might compromise are Bob Casey of Pennsylvania, Bill Nelson of Florida,Martin Heinrich of New Mexico and Angus King of Maine.  But to get these Senators will require negotiation and compromise. In my opinion this may well be the strong suit of a Trump Administration. With the business background of the President-Elect and so many of his key Cabinet nominees they understand how to make a deal. It was a major weakness of the Obama administration where they took hardline position on issues, particularly tax issues, and in the end failed to get anything done.

Tomorrow Part II

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