The collapse of the effort to repeal and replace Obamacare exposed fissures in the Republican Party that will continue to challenge the White House and congressional leadership.
The next big action that must be taken in Washington is raising the national debt ceiling. Adding to our already staggering national debt is not an action that anyone looks forward to.
But if it didn’t raise the debt ceiling, the federal government would be in default on current obligations it must pay to keep itself open and running. Failure to act would lead to a government shutdown, which everyone should want to avoid.
The problem is, the same factions that scuttled the Obamacare repeal are making noise about the debt ceiling vote. Conservatives object to what they see as unbridled federal spending, and moderates balk at proposed cuts in President Trump’s recently presented budget.
A bruising fight on the debt ceiling vote could sap the White House’s ability to get to the issue that should have been the first one addressed ahead of all others: tax reform. The 2016 election was a referendum on the economy above all else. Americans are rightly uneasy about their economic future, and voted for Republicans because they believed the party would deliver on its promise to lift the economy and create needed jobs.
That’s why it is so important for the Republican majority in Congress to show the discipline and leadership to get to dealing with our economic challenges. There are tax reforms that most everyone seems to agree would help jump-start business growth and add jobs. Key changes would lower the U.S. corporate tax rate to a figure closer to the international average and spur “repatriation” of billions of business dollars in corporate funds currently stashed overseas.
The stumbling block on tax reform has usually centered on the appropriate reductions in income tax rates. Here’s where I think the president and the Republicans in Congress should show some political sense. They should focus any income tax cuts on middle-class Americans, for whom even a modest cut would make a real difference.
Under the arcane budget rules by which tax reform must be considered, all tax cuts must be “reconciled” with spending offsets. It would be easier for the GOP to get a balanced tax plan through Congress without losing the votes of conservative spending hawks who oppose ballooning deficits, and moderates who resist what they see as overly generous tax relief for the well-to-do.
Right now, Republicans are embroiled in a distracting controversy on what’s being called a “border adjustment tax,” which is just another name for an import tariff that would ultimately be passed on to consumers as a tax increase on any and all imported goods. From items purchased at Walmart to American cars manufactured with imported components, the cost of goods we purchase would go up. This would amount to a tax increase on middle-class families at the same time that they’re being promised a tax cut.
Rather than taking such a broad brush to tax reform, Congress and Trump should look for more targeted reforms that would make the tax code fairer. An example would be to eliminate the so-called “carried interest” tax dodge, available to mega-rich hedge fund managers. This loophole allows these money managers to pay taxes at a lower capital gains rate than other taxpayers, who pay at a higher “ordinary income” rate. It’s estimated that closing this unjustifiable loophole could raise as much as $180 billion over 10 years, which could be applied to the middle-class tax cut Washington politicians all say they want to enact.
We Republicans too often get tagged by the liberal media and Democrats as favoring the rich in our tax proposals. But if Trump were to broker a tax-cut deal that channeled the bulk of the cuts to the hard-pressed, forgotten middle class voters who so strongly supported his election, and to businesses that could use the savings to expand economic growth and create jobs, he could get a tax bill through Congress that would be good for the economy and for his political future. And he would avoid the perfect storm that his presidency now faces.
Al D’Amato, a former U.S. senator from New York, is the founder of Park Strategies LLC, a public policy and business development firm. Comments about this column? ADAmato@liherald.com.