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The Impossible, Inevitable Survival of the Trump Tax Cuts

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Right as the Trump tax cuts were being finalized in December 2017, I wrote a piece for The New Republic about the silver lining that accompanied this large giveaway to the wealthy and well-connected. Democrats had put themselves in a straitjacket for years, with self-imposed “paygo” laws that they offset all new spending with revenue. That was fairly absurd in and of itself, but suddenly it was no longer a problem. The Trump tax cuts rolled back the estate tax, eliminated the alternative minimum tax, slashed the corporate tax rate, and created a new loophole, used mostly by the rich, for “pass-through” businesses.

Repealing those measures alone could net you around $3 trillion—and all you would have to do is go back to the pre-Trump tax code circa fall 2017. Every Democrat in office at the time opposed the Trump tax cuts: Joe Manchin, Kyrsten Sinema, Josh Gottheimer, and Kurt Schrader; every single one of the cast of characters that has become so familiar today. They all opposed it, and presumably would all be satisfied with a 2017-era tax code.

In the next presidential election, I surmised, all Democratic candidates would have to do is to say “I will repeal the Trump tax cuts,” and that could finance most if not all of their ambitions for their first term. There were $3 trillion in unpopular giveaways to the wealthy just waiting to be re-channeled into important priorities on energy and environment, health and family care, housing and transit, and more.

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Presumably. In that TNR piece, I also wrote that, “unfortunately, when Democrats get into power they suddenly get cold feet about repealing their predecessor’s bills.” I pointed to the Bush tax cuts, which were similarly loathed by almost all of the Democratic coalition (though not unanimously, as the Trump tax cuts were). On two separate occasions in the Obama administration, Democrats could have let the tax cuts expire and overhauled the tax code, potentially building new programs in the process. They first extended them all and then made them permanent except for the rates at the very top. A vice president by the name of Joe Biden conducted the latter negotiations, and got fleeced by Mitch McConnell, to the indignation of Democrats in the Senate.

Still, it seemed like reviving the post-Trump tax cut period had a better opportunity for success. While the Bush tax cuts had a few benefits for the middle class, the $3 trillion identified in Trump’s plan pretty much all went to the rich. And they ended up panning out even worse than promised. They cost at least $1.9 trillion, not the $1.5 trillion initially claimed. And the promises about the tax cuts paying for themselves and spurring investment were similarly proven untrue. They were highly unpopular and easily and accurately depicted as a sop to the country’s owners, the rich and the powerful.

Sure enough, during the 2020 election cycle, the Democratic presidential candidates targeted the Trump tax cuts. They all put out exciting plans that were, they assured us, fiscally responsible, because the tax cuts would be repealed. Progressive groups that tried to influence the Democratic agenda kept piling on more and more ideas, but the Trump tax cuts were big enough to bear the weight.

The Democratic Party, however, was not. There are many implications to the failure of talks on what was once the Build Back Better Act and what is now the Negotiate Prices on Ten Drugs Starting in 2026 Act of 2022 (working title). But one of the biggest is that the Trump tax cuts will make it through the first two years of the Biden administration unscathed—and could very well become permanent, a symbol of the one-way ratchet in favor of the top 1 percent that characterizes U.S. policymaking.

As I wrote last October, within months of Biden taking office, a pro-Trump tax cuts caucus took shape. Suddenly, the likes of Sinema, Gottheimer and Schrader and others were uninterested in raising taxes on corporations, capital gains, inheritances, pass-through businesses, wealthy households, or really anything or anyone else. The Biden administration and Senate leaders kept bargaining for other ideas. If the pro-tax cut caucus didn’t like raising marginal rates, how about a tax just on billionaires? If they didn’t like new corporate rates, how about a global minimum tax for large corporations, negotiated with the entire world, that would prevent evasion? How about just beefing up IRS enforcement so that the taxes actually owed under the current structure are actually collected?

One by one, the pro-Trump tax cuts caucus rejected these. The only part of the Trump tax cuts they really wanted to change was to reverse the repeal of the state and local tax deduction, practically the only non-giveaway to the rich in the whole package.

Manchin finally became a full-fledged member of the pro-Trump tax cuts caucus last week, when he rejected any tax increases in reconciliation. The entire premise of Democratic policy for the last two years—use the rollbacks of the most unpopular (the only unpopular?) tax cut maybe in history to offset a new round of deeply needed public investment—was dead.

Compared to the last high-profile policy repeal effort—the Republicans’ recurrent failed attempts to repeal Obamacare—this one fared even worse. At least Obamacare repeal got votes, dozens of them in fact. The Trump tax cuts were never even put on the Senate floor for a rollback.

At the time that I wrote about this last fall, I came up with a modest proposal. Most of the individual measures of the Trump tax cuts will expire in 2025, because of the need for them to be revenue-neutral outside the ten-year budget window. (This is also why Democrats had the opportunity to let the Bush tax cuts expire, which they squandered.) My thought was: Why not make the Trump tax cuts permanent, on a bipartisan basis, and then in reconciliation, roll the individual components back to 2025, where they are today? That would manufacture $1 trillion out of thin air, enough to finance the thinned-down version of Build Back Better.

“It may sound absurd, but the whole notion of a pay-for is also absurd, a budgetary fiction disconnected from the reality of how government finances work,” I wrote.

If the so-called party of the people cannot raise taxes on the ultra-rich they have little purpose other than being yet another handmaiden for the wealthy in Washington.

But now I’m thinking that the first part of my proposal is what’s surely going to happen. The Trump tax cuts are going to be made permanent, signed by whoever is president in 2025, if not by Biden before that. Despite lofty promises, not a single dollar of the uniquely unpopular policy, courtesy of the president maybe more reviled by Democrats than any other, will be touched.

Among other things, this is going to severely damage U.S. global leadership. Treasury Secretary Janet Yellen took the lead on winning international backing for the global minimum tax, and now the U.S. will not follow through on the promise. This makes it that much harder to muster a global coalition again, for instance, for creating a price cap on Russian oil.

It’s also, as Jon Chait points out, devastating to the party brand. If the so-called party of the people cannot raise taxes on the ultra-rich they have little purpose other than being yet another handmaiden for the wealthy in Washington. It alienates the party from its roots and reinforces the caricature Republicans have created of “limousine liberal” elites. And it’s the so-called moderates who inflicted this damage; their losses in November and beyond would actually help the party in the long run.

So why are the Trump tax cuts still standing? Is it something to do with tax policy in particular, and the Democratic allergy to tax increases? Is it a function of bare Congressional majorities, ridiculous legislative rules like the filibuster, and too-dramatic goals overlaid onto them?

I think it goes deeper, and signals how Democrats have just forgotten what constitutes governing. The way they create policy ideas, form political coalitions, and work to pass measures through Congress is just impossibly broken. If you have unanimous opposition to a bad policy with no real political proponents and then can’t get a single thing done about it in the space of five years, it speaks to an essential malfunctioning at every level of the party and the process. Nobody should get a pass for it. It’s nothing short of an embarrassment.