Nobody Knew Legislating Could Be So Complicated

It doesn’t get any easier from here.

Forget tax reform, which is no easier than health care — Republicans first have to avert a government shutdown.

Among the various lines spun in the wake of the AHCA’s collapse is the notion that this merely represented a failure of sequencing. That “nobody knew health care could be so complicated,” and that Republicans should have limbered up with some low-hanging fruit, say tax reform. Except that this order wasn’t incidental, it was very much deliberate. And if you thought health care was hard despite Republicans all pushing in the same general direction, just wait until the tax fight starts in earnest and the battle lines go fractal.

As I wrote earlier in the month, the repeal effort was as much about priming the pump for a tax overhaul as it was meaningfully reforming the health care system. Indeed the internal arithmetic of the Ryan-Brady “blueprint” was predicated on repeal, leaving a 12-figure hole in the House plan before it even sees the spotlight.

Any significant, permanent change in tax rates requires a great deal of revenue. Every dime you can buy down the baseline is critical, and at nearly a trillion dollars in tax relief, the AHCA accounted for a heck of a lot of dimes. To put it in perspective, the cost of a one point corporate rate reduction is roughly $100 billion over the 10-year budgetary window. The rate currently stands at 35 percent. Which means GOP health care futility makes it a lot harder to realize the 15 to 20 point rate envisioned by the White House and Republican leaders.

Needless to say, tax reform is also complicated, as everyone not named Donald J. Trump seems to intuit. Once you scratch the surface of the base-broadening, rate-lowering mantras, things get hairy quickly, even on the business side. Corporate vs. pass-through; debt vs. equity financing; importer vs. exporter; domestic vs. multi-national; industry x vs. industry y. These aren’t things that cut along neat ideological lines, and they’re further scrambled by the constituencies (and committee assignments) of members in disparate states and districts across the country.

One man’s egregious loophole is another’s common sense tax provision. To the extent you’re shifting the tax burden, somebody ends up a loser, at least on a static basis. Asking stakeholders to give up parochial carveouts and preferential treatment, even amid the promise of a vastly more fair, efficient, and pro-growth internal revenue code, requires an abundance of trust and good faith, something that Capitol Hill faced an acute deficit of even before the latest recriminations seeped into the well. It’s important to remember that even the biggest boosters of a corporate rate reduction, lamenting as they rightly do the sky high statutory rate, often pay little or nothing to the US Treasury at the end of the day. The devil they know may well be more appealing than the great unknown. And that’s leaving aside the narrative problem for Trump of delivering tax breaks for Wall Street fat cats while doing nothing for his voter base.

Already once bitten by the legislative process, when President Trump appreciates the many pitfalls of bona fide tax reform, there is a high probability he’ll opt for the easy way out. There’s nothing to suggest he possesses the patience, the sophistication, or the fortitude to sell the more difficult trade-offs something like the House blueprint would entail.

For Trump it’s always about the pursuit of the deal, not what’s in it. If he can declare victory, he’s not above taking shortcuts, particularly after the health care face plant. And the easiest way to do that is to reprise the 2001/2003 approach of pure, temporary tax relief. Candy for everyone, complete with stock market sugar high. By the time the fiscal tummy ache rolls around he’ll be out of office one way or another. Why not leave it to the next sucker to deal with?

Of course the rub is that before Republicans can even begin to consider the FY2018 budget resolution that would provide a priviledged vehicle for tax cuts, they have to deal with a number of more pedestrian issues, chiefly funding the government. Not in some fantasy, just-on-paper policy document like Trump’s “skinny” budget — they actually have to find the formula (and the votes) to keep the lights on. And unlike the past six years where Democrats had at least some ownership of the federal government, and therefore an incentive to provide the lift, they’ll be far more inclined to let Trump and his party twist in the political wind.

While both health care and tax reform had obvious political upsides, there’s no back patting from outside groups for doing the basic blocking and tackling of government. Where reconciliation bills and Congressional Review Act resolutions allow for party line victories, albeit with restrictions, the appropriations process requires at least some Democratic buy-in in the upper chamber. How will Trump respond when his wall funding is a non-starter? How will the Freedom Caucus react if the President asks them to bite the bullet on a clean CR or debt limit increase?

So forget tax reform for a moment. The real test will be whether Trump can forge a Republican deal to fund the government or if the familiar brinkmanship will end with Speaker Ryan having to rely on Democratic votes, forcing Leader McConnell to cut a deal, and sending the whole package lurching leftward despite the GOP trifecta. If you thought this week’s display was dysfunctional, just wait until we start bumping into actual deadlines rather than just arbitrary ultimatums.