The GOP Tax Bill and the Midterm Elections

Last January 3, an overjoyed Paul Ryan and Mitch McConnell took their seats in the new 115th Congress hoping to undo President Obama’s legacy and establish a conservative one of their own. The next months, however, did not live up to their expectations. Despite their surprise victory in the 2016 elections, which gave them the presidency and allowed them to maintain control of both houses of Congress, the Republicans found themselves divided, consumed by unsuccessful attempts to repeal the Affordable Care Act and unable to pass any major legislation. This has all changed in recent weeks, with a new tax bill likely to become law. On Friday night, the Senate passed its version of tax reform by a slim 51-49 margin. Since the House passed its bill in mid-November, President Trump will be able to sign it into law once the two houses resolve the differences between their bills.

The most important aspects of the GOP’s tax plan, common to both the House and Senate bills, are a large permanent reduction in the corporate tax rate (from 35 to 20 percent) and a more modest temporary across-the-board cut in income taxes. In addition, the Senate bill repeals the individual mandate fine in the Affordable Care Act, and both have changes involving other taxes and deductions. The Republicans claim the bill will stimulate the economy and help the middle class. They also argue that the economic growth the tax cuts generate will prevent them from increasing deficits. Critics accuse conservatives of irresponsibly raising the debt, endangering social services and future generations, to help businesses and the wealthy. The plan will cut taxes for most people in the middle class, and independent analyses do indicate that it will bolster economic growth somewhat -- but much less than the GOP claims. According to the Washington Post: “The Senate GOP tax plan would cause faster economic growth -- about 0.8 percent more over the next decade, the [congressional Joint Committee on Taxation’s analysis] found. But that amount of growth only covers about a third of the cost, far short of what is needed to have revenue-neutral tax reform.”

In addition to transforming the tax code more profoundly than any law in decades, the Republicans’ efforts here may prove crucial to them politically. The midterm elections next November will present an incredible opportunity for the GOP generally and for Trump in particular. In the Senate, ten Democratic senators are up for reelection in states Trump won, five in states he won by at least 19 points. By contrast, only one Republican, Dean Heller of Nevada, is running in a state that voted for Hillary Clinton. Since they already have a sizable majority in the House, the 2018 elections could thus give the Republicans more solid control of Congress, making it easier for them to push through their desired policies. Plus, Senators Jeff Flake and Bob Corker, two of Trump’s biggest critics within his own party, are retiring, leaving open the possibility that Trump allies will claim those seats. On the other hand, if the midterms go well for the Democrats, they would weaken the GOP majorities, and perhaps even claim the House, making it even harder than it has been for the Republicans to get anything done. Trump and the rest of his party hope their first major legislative accomplishment will counter voters’ doubts about their ability to govern effectively. They are also gambling on its success, and counting on Americans to attribute a stronger economy to its passage. In all likelihood, the tax bill will allow the Republicans to end 2017 with a big policy victory under their belts. Now it’s up to them to sell it to the people in 2018.