Now that President Trump’s simmering feud with Tennessee Senator Bob Corker has exploded into the open, it appears that Republicans’ odds of passing tax reform before the White House’s self-imposed year-end deadline are growing slimmer by the day, and according to Cowen analyst Chris Krueger, "tax reform is dead, full stop."
And with the administration increasingly staking its credibly on the process, Politico is reporting that White House Legislative Director Marc Short has - on the order's of the president - embarked on what’s probably a fool’s errand: coaxing Kentucky Sen. Rand Paul – one of the most vocal opponents of the administration’s agenda – to vote “yes” on the bill.
The Republican bill hasn’t yet been written, but Paul has already lashed out at the administration’s nine-page tax-reform proposal for appearing to offset tax cuts for corporations and the rich by raising taxes on the middle class. Indeed, as discussed previously, a review of the preliminary proposal by the nonpartisan Tax Policy Center suggested that middle-class taxpayers could wind up paying more if certain deductions, such as eliminating the deduction for state and local taxes, are eliminated.
Paul said in an interview that he’s undecided on both the budget and the tax plan blueprint but unleashed a torrent of criticism at the tax proposal nonetheless.
“The danger for this bill right now is the pay-for may be a middle-class tax hike. And if that’s that, it’s going to be a real problem,” Paul said. “If you lower the taxes on the rich and lower the taxes on the poor and then say, ‘Oh it’s going to be revenue neutral,’ we’ve got to raise somebody’s taxes to pay for it.”
To be sure, the administration has reportedly backed away from eliminating the SALT deduction following an outpouring of criticism from both Republicans and Democrats. Still, Politico reports that Paul – who like Corker is wary of blowing out the budget deficit - is starting off in the “no” column and planning to vote against the Republican budget which has already passed the House and is working its way through the Senate.
The Kentucky Republican’s outspoken opposition to a leadership-backed Obamacare repeal-and-replace bill and the backup Graham-Cassidy plan helped demolish the GOP’s health care agenda. And now Republicans are worried that the contrarian Paul is going to do the same on tax reform by coming out early and vocally against their work, according to two allies of Senate Majority Leader Mitch McConnell (R-Ky.).
“You have to assume he’s going to be a no on everything,” one of them griped.
The Senate will consider the budget teeing up tax reform in mid-October, and Paul is privately sending signals he’ll vote against it, just as he did on the budget setting up Obamacare repeal in January when he was the lone Republican senator to do so.
Paul’s opposition to the administration’s agenda has frustrated President Trump, who reportedly likes and respects the Kentucky senator and has made winning his vote a priority for Short and the rest of the administration’s legislative team, though Mitch McConnell has reportedly told the president to expect a “no” vote from Paul.
The president seems personally stung, two officials said, when Paul votes against Trump’s nominees and health care plans, because Trump likes him and thinks "he should be on the team," in the words of one administration official.
McConnell has told Trump that he shouldn't expect Paul to support the tax bill but Trump won't accept that, according to a person familiar with their conversations. So Short spoke personally with Paul this week about tax reform and agreed to try to work with Paul to get to him to “yes.” It’s not clear if the White House can give Paul what he wants, but the two men agreed to try.
“Senator Rand Paul will continue to advocate for a tax cut for all. He is not trying to dictate exact policy. There is a wide variety of scenarios that he would support, but raising taxes on the middle class should be a non-starter,” said Sergio Gor, a spokesman for Paul. “Too many individuals in congressional leadership are more worried about bullet points on a white paper instead of delivering on a promise to actually cut taxes for the American people.”
Including Paul, Politico has identified at least four Republican senators who might oppose tax reform – one more than would be needed to kill the bill. The GOP leadership can only afford to lose two votes, assuming all 46 Democrats and the two independents who caucus with the Dems vote against.
Paul’s legislative eccentricities have been magnified by the GOP’s narrow majority even as the party controls all of Washington. Just three GOP senators can stop tax reform, just as they did on health care. And there’s already worry among Republicans that McCain, Sen. Susan Collins (R-Maine), Sen. Bob Corker (R-Tenn.) and a handful of other senators could vote against the nascent tax plan.
Of course, equity strategists have for months postulated that tax reform is the only piece of legislation that matters when it comes to justifying record-high valuations in the US stock market. But in some corners of Wall Street, skeptics are making a compelling case for why the legislation is doomed. Yesterday, Cowen analyst Chris Krueger pointed out that with Bob Corker sounding like he might oppose the Republican tax agenda purely out of spite (while also using it as an opportunity to burnish his credentials as a deficit hawk), and John McCain already talking about a “bipartisan approach” (implying that he’s a hard no), the Republicans appear to have already reached the zero margin of error on the tax reform process, meaning one more no vote could sink the whole thing.
For what it’s worth, Goldman Sachs over the weekend assigned tax reform a 60% chance of passing after a budget bill sailed through the House last week, while a Senate bill was approved by the influential Senate Budget Committee.
As the Washington Examiner explains, passing a budget is the first step in the tax reform process because it unlocks reconciliation, allowing legislation to pass with only 51 votes in the Senate. But Republicans shouldn’t hold their breath: the budget has yet to run the gauntlet in the Senate, a venue that has already earned its reputation as an elephant graveyard for Trump-era legislation.
And a “no” vote from Paul could very well scuttle tax reform before the bill is even written.
For now the market appears to be quickly discounting the probability of meaningful tax reform (though at the index surface, some might argue otherwise)...