The Plutocratic Id

Eventually, perhaps in the reading room of the Trump library, a researcher may actually find a document that sheds some real light on whether Republicans in Washington genuinely think this is their last chance or think that nothing matters so why not grab it all.

The Tax Cuts and Jobs Act lets corporations loose to do what they will—and then imposes pain to make the numbers work.

Photograph by Victoria Pickering.

The Tax Cuts and Jobs Act is a horrifying but also politically curious document. Above all, it is a gift to the corporations, who get rewarded with a massive permanent tax cut. It attacks the fiscal capacities of Democratic states, and, for good measure, extracts the first real legislative pound of flesh from Obamacare. It comes into the world red in tooth and claw. Politicians typically showcase the goodies and hide the dirty laundry. Not here, and therein the mystery lies: why a bill so manifestly written to please such a narrow stratum of plutocrats, with so few evident political benefits to a party hoping to retain power, now heads into the home stretch. The heavy lift is over, and only a conference committee to patch up differences between the House and Senate texts, and final passage in both chambers, remain before Donald Trump signs his first major legislation into law.1 That this is “what Republicans do” hardly seems sufficient to make sense of how we got here.

Two basic parameters have determined the shape of the tax package. First, the statutory rate on corporate taxes gets permanently slashed from 35 percent to 20 percent. On this point the party has been completely adamant. In the fullness of time, the story of exactly how and why a 20 percent corporate tax rate became the sanctum sanctorum of Republican fiscal policy may finally unspool itself. Mitt Romney (Mitt Romney!) proposed a 25 percent rate in 2012. This time around, Republicans decided, rather than imposing any pain whatsoever on the corporate side, to go after individuals. The old notion of corporate tax reform was to “lower the rates and broaden the base.” House Republicans floated such a plan in early 2017, a destination-based cash-flow tax, which would have functioned more or less like a value-added tax (in essence, a consumption tax, based on the value added to goods and services at each point in the production chain) with an exemption for wages. The VAT, a piece of nearly every other rich country’s tax system, is a ruthlessly efficient way to raise revenue, as the Koch firmament well knows, and the idea soon vanished, with nothing to replace it. The Obama Administration in 2016 offered a blueprint with a rate of 28 percent designed to be at least revenue-neutral. It would have tightened up the corporate code in a variety of ways, for instance by slowing down the schedules for depreciation of assets, eliminating tax preferences for oil and gas, and limiting deductions for debt financing, which have been critical to the financialization of American capitalism. The Republican bill, instead, looks to the individual side—in other words, to voters’ own tax returns—to fill the hole.

Second, the tax package has had to fit inside the narrow box allotted to it under Senate rules. The budget resolution that Congress adopted in October allows for an increase in budget deficits of up to $1.5 trillion during the next decade. Under the Byrd rule that defines the scope of budget reconciliation, fiscal policy bills can be passed with limited debate and a simple-majority vote, but only provided that they do not increase the budget deficit outside the ten-year “budget window.”2 Republicans, however, want low corporate taxes made permanent, ostensibly so businesses have certainty as they make plans to deploy capital. To achieve that goal and comply with the Byrd rule, something has to give, and so by the end of 2025 all the changes in individual tax rates revert to their levels before the bill’s passage, even as the limits on deductions remain. (Some provisions expire even earlier.) In other words, the goodies are temporary. And one more fillip: brackets subsequently rise based on a less generous measure of inflation known as “chained CPI,” which squeezes households and raises revenue as far as the eye can see. The moment of reckoning arrives at the end of 2026, when the time comes to determine that year’s tax rates. Rates will either snap back to their previous levels, or Congress will try to extend the cuts. The results, should Congress fail to act, are clear. The Tax Policy Center estimated on November 20 that in 2027, 62 percent of the benefits of the Senate bill will flow to the top 1 percent. The Bush tax cuts of 2001 and 2003 look like chumps in the regressivity sweepstakes; they only managed to deliver 27 percent.

The bill creates all sorts of incentives for the rich and the even richer, abetted by an armada of lawyers and accountants, to fiddle around with the corporate form as they seek to avoid paying taxes. Alongside the corporate tax cuts, which apply to C-corporations, come sweeteners for pass-through entities—S-corporations (which may have up to 100 shareholders), partnerships, LLCs, and sole proprietorships—where taxes get paid at (i.e. they “pass through” to) the individual level. Despite all the fuzzy small business talk, according to the Brookings Institution’s calculations, more than 70 percent of S-corporation income and partnership income goes to the top 1 percent. (For sole proprietorships the figure is only 18 percent.) What will companies, already sitting on piles of cash, do with all this extra money? Likely what they’ve already done: Take their windfall and simply buy back shares or increase dividends. Gary Cohn, the top White House economic adviser, asked a crowd of CEOs last month to raise their hands if they planned to invest more with the dollars they would save. A few lifted their arms. “Why aren’t the other hands up?” Cohn asked plaintively.

Then comes the estate tax. Should grandma die after December 31, 2017, the exemption doubles before the estate tax kicks in: to $11 million, or $22 million for a couple. States, abetting this massive transfer of wealth, have in recent years raced to allow “perpetual trusts,” which shield assets for generation after generation. As today’s heirs become tomorrow’s rentiers, we have the makings of a new hereditary aristocracy.

Combine the ongoing travails in the Internal Revenue Service of politicization (in typical Trump fashion, the agency is being run by an acting director, a former Ernst & Young executive, with no permanent head yet named), demonization, and starvation (IRS funding in real terms, declined 18 percent from 2010 to 2017) along with Republican plans to shift its efforts to catching “cheats” on the hard-to-calculate Earned Income Tax Credit, and the door is open to all manner of nightmares.

Besides offering tax-advantaged savings accounts for private and parochial K-12 schools, slipping in a tax break for private jets, unshackling the restrictions on nonprofits’ electoral activities, and leaving intact the infamous carried-interest loophole, two pieces of the tax bill stand out. The individual mandate, Obamacare’s directive to buy health insurance or else face a small but meaningful fine, gets zeroed out. In a nifty trick, when fewer people sign up for Medicaid or avail themselves of subsidies on the exchanges, less health spending means smaller deficits means more corporate tax cuts to fit inside the $1.5 trillion box set by the budget resolution. The Congressional Budget Office estimates that by 2027, thirteen million fewer Americans will be insured. Whatever the final numbers turn out to be, the long assault on the Affordable Care Act has claimed its first scalp.

The Republican assault on the fiscal capacity of the states, so devastatingly effective in red states, now moves to the rich blue ones. Since the modern income tax arrived in 1913, taxpayers have deducted from their federal income taxes the full amount paid in state and local taxes (SALT). They did not see the money, the theory goes, so why pay tax on it? No longer. Henceforth, taxpayers may deduct $10,000 in property taxes only—and no more. The direct hits fall hardest on upper-middle-class taxpayers in states like California, New York, and New Jersey. Yet the effects will likely prove worse for poor people in rich states than for those denied their SALT deductions. With state income taxes no longer deductible on federal taxes, raising them becomes a heavier political lift. Structural budget deficits will worsen, and all the claimants inside blue-state liberalism will start to fight among themselves.

At the federal level, Republicans hope and Democrats fear that “starve the beast” will come next. Marco Rubio, ever the donors’ darling, promises “structural changes to Social Security and Medicare for the future.” But Social Security explicitly cannot get touched under budget reconciliation.3 A serious attack on Medicare would be about the likeliest reasonable scenario to deliver the Democrats a working majority in the House. Still, Medicaid survived fully intact last summer only by a thread; next time might be different. Donald Trump has pledged welfare reform, which has the advantage for the President and his base of blatant race-baiting, but after two decades of flat block grants, there’s no money to be gained there. The program most at risk is probably the Supplemental Nutritional Assistance Program, or food stamps, where a block grant—states get a lump sum to spend, and recipients lose their federal guarantee of benefits—may be in the offing. The same reality that has dominated American politics since the Reagan tax cuts of 1981 grinds on. There’s money to cut taxes and for the military, but serious programmatic retrenchment is hard, and, given ongoing deficits and Democrats’ fiscal rectitude, finding money for big-ticket domestic spending is even harder.

Republican tax cuts are not news. Tax cuts like these are. Beginning with Margaret Thatcher and Ronald Reagan, conservatives on both sides of the Atlantic have described their politics as “aspirational,” building a coalition that brought together the strivers with the successful. Round after round of tax cutting, for all the sleight of hand, has followed the same rough formula to bolster Republican fortunes among those who, in Republican eyes, want to succeed, much in line with the dictum from E.E. Schattschneider in 1935 that “New policies create a new politics.” For families in the middle class and beyond, rates go down and various credits, deductions, and tax-advantaged savings accounts, all designed to forestall a universal welfare state, help cushion life’s indignities. For the rich, rates go down aplenty, but without imposing direct pain on the lower orders. The Ownership Society may have been a moral and a fiscal catastrophe, but it was not mere hokum.

A politically logical path for 2017, it seems from the outside, would follow the Bush-Rove playbook, and pair a more modest cut in corporate taxes with across-the-board cuts in individual rates. Close out everything at the end of the budget window. Nobody loses. A few Democrats might have come on board (the 2001 tax cuts won eleven Democratic votes in the Senate), and so fracture the opposition. Marco Rubio and Mike Lee wanted to expand the Child Tax Credit so it’s refundable against payroll taxes, but neither conditioned his support for the bill on adopting the proposal nor made the amendment tempting to Democrats hoping for a crumb. Still, the idea is a glimmer of what might have been. (There’s a very slim chance the proposal might actually emerge from conference.)

Instead, the Tax Cuts and Jobs Act simply lets corporations loose to do what they will—and then imposes pain, some of it plainly visible and some of it not too far from the surface, to make the numbers work. Partisan overreach from narrow majorities is nothing new in contemporary American politics, but this feels somehow new. The Republicans are down big in the generic House ballot, and pushing an unpopular bill. This is not a bill that patiently cultivates new Republican constituencies. Neither the plutocrat-worshipping Paul Ryan nor the schemer Mitch McConnell nor the plutocrat-racist Donald Trump has the patience for any of that. Nor do the donors who are the obvious winners. For all of the above, the playbook clearly runs to stronger stuff than mere tax games. Not for the first time, what once seemed like depraved political eras now seem almost quaint. And so the critical if still puzzling move. Eventually, perhaps in the reading room of the Trump library, a researcher may actually find a document that sheds some real light on whether Republicans in Washington genuinely think this is their last chance or think that nothing matters so why not grab it all. Or maybe, somehow, both stories are going on at once. Until then, we stare into the vortex. The plutocratic id, long held in check by the exigencies of coalition-building, gets released. And then, faced with an up-or-down-vote, that plutocratic id wins its Congressional majorities.

In the House, that Republicans seem willing to die on just this hill makes a certain macabre sense. Life as what passes these days for a GOP moderate in a leadership-run House isn’t much fun, nor are moderates (or, in the actual division here, rich-state Republicans) a disciplined or effective bloc. They saved the $10,000 property-tax deduction, but no more. Vote no, hope to survive a Democratic wave in 2018, and you’re still on the outs, looked at askance by the big donor blocs, vulnerable to a primary, unlikely to advance far in the chamber. Just as Democrats who voted for the Affordable Care Act paid the price in 2010, then some number of blue-state Republicans will pay the price next year. The party hopes to limit their numbers to a few seats trending away from them, but they may not be so lucky. And even if they lose the chamber in 2018, they have struck a mighty blow. This is, in some sense, what party government looks like in the House.

That logic, however, reaches its limits in the upper chamber, where the story that the Kochs and the Mercers paid the piper is insufficient, and the story that members walk the plank for the good of the party must stretch further. Three Republican Senators could have blocked the bill, and more than that have their own power bases or are on their way out. The lame-duck deficit hawks proved no obstacle. Jeff Flake will soon give speeches against Trump on the floor; except for some ineffectual mutterings about DACA, he moved to yea. In a master class in parliamentary ineptitude, Bob Corker, who agreed to the $1.5 trillion in new deficits included in the budget resolution and waved the bill through the Budget Committee, watched his dumb idea for a “trigger,” which would have raised taxes if the deficit exploded, fall victim to Byrd Rule trouble, and ineffectually voted no on the floor. The paragons of summertime virtue—Lisa Murkowski, Susan Collins, and John McCain—all dutifully fell into line. Murkowski’s motivations are clear enough. She got what she had long wanted: the ability to drill in the Arctic National Wildlife Refuge. But Collins got crumbs. She opposed including the individual mandate provisions in the tax legislation, and the health bills she was told would pass before the final conference report would hardly stabilize an individual market headed for trouble in a post-mandate world. Nor does getting a property tax deduction into the Senate bill count for much. Full SALT repeal couldn’t have passed the House; even House Republicans have their limits. McCain voted against the Bush tax cuts and has no love for McConnell or Trump. He trumpets regular order, a hard case to make for a bill infamously rewritten in longhand in the hours before the final vote. He got nothing at all.

And so the contingent individual stories seem insufficient to grasp the larger story. This bill has struck through the pasteboard masks. All the excuses fall away. The point is not just how little the bill does for the party’s foot soldiers but how blatantly it advertises its own rapaciousness, how forthrightly it waves the flag for capital, how little tribute vice pays to virtue. It is a scheme to grab it quick, to fleece and get rich. (Very, very rich). In the Trump era, as everybody says, subtext becomes text, and so in tax policy. Corporate tax cuts for me; ICE raids and Twitter tantrums at kneeling players for thee. That is what sticks in the craw: that this horrid bill, at this point in history, with this President, about whose dangers various members fulminate, is the Republican Party, all of it. Whether Republicans fear that time is not on their side, from demographics or else from Mueller, and want to loot the place the last chance they get; imagine that ethnonationalism plus gerrymandering and calcified party loyalties will keep them their Congressional majorities, so who cares if a few more suburbs defect; really and truly believe—damn the simulation models, full speed ahead!—that the tax cuts will pay for themselves; deem it a farce but what they have to do as a party; or believe it’s what they have to do as a party and don’t think about much else, the sheer brazenness, the redistribution not just of wealth but of power, retains its power to shock.

  1. At this writing, a conference seems likely, at a minimum to fix a glitch in the Senate bill involving the corporate Alternative Minimum Tax, added as a last-minute pay-for. The Senate text is expected largely to prevail, though surprises are always possible. The House goes further than the Senate in targeting disfavored constituencies. In particular, the Senate bill does not include provisions to remove the deductibility of interest on student loans or to force graduate students to pay income tax on tuition waivers. 

  2. I wrote about reconciliation and the Byrd Rule last summer: https://www.nplusonemag.com/online-only/online-only/irregular-order/

  3. By expanding the deficit, the Tax Cuts and Jobs Act triggers automatic cuts, including in Medicare, under statutory “pay-as-you-go” (PAYGO) rules, which Congress will most likely waive, but at the cost of imposing yet more chaos, and yet another ask for Democrats as they seek to maximize their limited leverage (with something else falling by the wayside), on the complicated maneuvers to keep the government open, raise the debt ceiling, reauthorize the Children’s Health Insurance Program, protect the DREAMers, and, fitfully given the zeroed-out mandate, stabilize the individual market in health insurance. 

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