Lazio: Expect a More Moderate, Less Ambitious Tax Bill

Yesterday’s lead editorial in the Wall Street Journal (May 17th) made the point that the President is dangerously close to losing the Republicans who he needs to pass his agenda, including tax reform: “Weeks of pointless melodrama and undisciplined comments have depleted public and Capital Hill attention from health care and tax reform, and exhaustion is setting in. America holds elections every two years, and Mr. Trump’s policy allies in Congress will drift away if he looks like a liability.” Exactly. Behind the scenes, more and more of my former Republican congressional colleagues are expressing reservations about the chronic drama in the White House and concern that supporting the President will lead them to the same sinking polling numbers and unwelcome controversy that confront the president. It’s way too soon to say that he has permanently lost key support, but the risk to his policy agenda is clear and present.

Exhibit A is the increasingly independent and firm voice of Senate Majority Leader Mitch McConnell, no shrinking violet when it comes to the defense of Republicans. In an interview on Bloomberg earlier this week, McConnell said that the Senate would draft its own version of tax reform, and not use the House passed bill as a foundation. He said that the tax product would be revenue neutral and that a border adjustment tax “probably wouldn’t pass the Senate.” Senate Republicans have a delicate and fragile three vote margin in the Senate – a tie would presumably be broken by the vote of Vice President Pence. With this, their leader is signaling that he expects that they will have to accommodate the views of the breadth of the Republican Senators, from Ted Cruz to Susan Collins. Translated, this suggests a narrower scope, and a more moderate, less ambitious tax bill. With a trillion dollars of new tax revenue absent without a border adjustment tax and a requirement of revenue neutrality, we should be prepared for business marginal rates that are closer to the low 20s, or perhaps 25% rather than the aggressive 15% that was in President Trump’s tax reform outline, released last month. A marginal rate that is higher than the median effective rate of C Corporations (which is lower than that of pass-throughs), on the other hand, will be seen by conservatives as difficult to swallow. And in the end, conservative Republicans in the House of Representatives will be asked to vote for a bill that looks a lot more like what the Senate can deliver than what they have passed.

There is a reason why comprehensive tax reform only happens once a generation: it’s hard. There are winners and losers and the losers often fight harder against new provisions that gut their benefits than winners fight for those that bring them relief.

And Presidents matter. Without a strong and engaged President with political capital he or she is willing to spend, the odds become impossibly long.

I’m not pessimistic that tax reform will happen but the events of the past two weeks have moved back the timetable for enactment, narrowed the window of possibilities, and made the political lift that much greater.

 
Rick LazioAbout Rick
Former Congressman Rick Lazio recently became the Senior Vice President of alliantgroup, a national tax consultancy. A longtime advocate of small to mid-size businesses, Lazio spent his four congressional terms sponsoring pro-business initiatives such as the Small Business Tax Fairness Act of 2000. After his time in Congress, he held several positions in the private sector. He worked as Executive Vice President and later the Managing Director of the Assets Group at JP Morgan. Rick also served as a partner at Jones Walker LLP, a national financial services law firm, and headed the firm’s National Housing Finance Practice group. He serves on the Board of Directors for Enterprise Community Partners and the Bretton Woods Committee. He also has been an active member of the Committee for Economic Development and the Association for a Better New York (ABNY). Lazio is involved in numerous other business, philanthropic and civil organizations.