Tax reforms recently passed in the U.S. are being touted as President Trump’s singular major achievement thus far in his term. But the U.S. Constitution specifies that all money-related bills originate in the House of Representatives, and it was there, under the leadership of Speaker Paul Ryan, where this tax reform movement really began.
In fact, tax reform has been Ryan’s principal issue since he was first elected to Congress in 1998 from Wisconsin. “At a time when many Americans are still living paycheck-to-paycheck, tax reform means more jobs, fairer taxes, and bigger paychecks,” say Ryan in a recent press statement.
Spurred on by broad frustrations with the U.S. tax code, Ryan has long been an ardent critic of what he asserts are built-in inefficiencies that are only getting more and more onerous. According to Ryan and many supporters of a tax overhaul, specific reforms and overall simplification will reap a windfall, both in the short and long term.
The National Association of the Self Employed (NASE) notes that the average small business owner spends 160 hours annually during tax time tangling with complex deductions, schedules, receipts and rules.
NASE president and CEO Keith Hall says the reforms, “…will have a significant impact on millions of small businesses desperately seeking relief from America’s oppressive tax code.”
The Tax Foundation pegs the costs of tax code compliance at over $400 billion per year. So, the simplification component of the Ryan/Trump tax package stands to free-up substantial resources to other parts of the U.S. economy.
This was particularly effective messaging and in the end made a threatened “no vote” by a small number of moderate Republicans politically impossible. In fact, this message-based wedge was critical to its passing both the House and the Senate – and to reaching President Trump’s eager pen on December 22.
And while just about no-one outside the White House is ready to declare a net reduction to the national debt, there is now broad consensus among Republicans that the lost revenue will be offset to some significant degree by a higher rate of growth in the overall economy. This growth is supposed to not only contribute to the tax base, but drive up the demand for labor – putting workers in a good place for real earnings growth while luring some bystanders back into the labor market.
Depending on what you read, the Trump/Ryan tax reform is either the greatest thing to happen to the working and middle class since Walmart or a brazen giveaway to the already rich.
And while the truth is often somewhere in between, it is noteworthy that the cut to the state and local tax deduction (SALT) will mean some wealthy taxpayers pay more, and mostly in higher tax, anti-Trump/Ryan parts of the country such as New York and California.
It is also noteworthy that the breaks for business are permanent, while the breaks for the working and middle class are currently slated to go away in 10 years – a point that Democrats successfully exploited in the media, but were unable to address in the final bill.
This illustrates a key point: Influencing a majority may be a broad marketing goal, but depending on the campaign, winning the hearts and minds of key decision makers may be all that matters. This is certainly the case here where a December 21 Gallup poll showed only a 29 percent approval rating for the bill, but thanks to carefully crafted messaging it managed to pass and get signed into law the next day.
When Ronald Reagan led tax reforms of the 1980s, it was done on a bipartisan basis in contrast to the strict party lines of the votes on the Trump/Ryan package. But Democrats of that era included moderate to conservative leaders such as Sam Nunn of Georgia. Democrats also controlled the U.S. House throughout Reagan’s two terms – making a degree of bipartisanship a prerequisite for any sort of governance.
We may yet see a return to that divided government following November’s midterm elections. But the consensus is that we surely would have seen it had Republicans not successfully delivered tax reform when they hold the White House and majorities in both legislative chambers.
And while the White House and many in congress are polling at record low levels, this past December Republicans managed to pull one very important tax rabbit out of their tattered hat. Popularity matters, but strategic messaging often matters more.