The Republican Tax Bill Might Need an Escape Hatch to Pass

Ahead of a key vote this week, senators from states where tax cuts busted the budget want the plan to include a “backstop” in case the party’s rosy revenue predictions don’t come true.

Senator James Lankford of Oklahoma giving a presentation
Senator James Lankford of Oklahoma is pushing for a "backstop" in the GOP tax-cut bill. (J. Scott Applewhite / AP)

Republican Senate leaders have sold their proposed tax cuts as a surefire jolt to the economy—one that will eventually refill the nation’s coffers with revenue generated through more jobs and higher wages. But what if it doesn’t?

One of the final pockets of resistance to the GOP plan is coming from senators who have seen firsthand the darker side of those lofty promises. Senators James Lankford of Oklahoma and Jerry Moran of Kansas have each raised concerns in recent days about the budgetary impact of the chamber’s tax bill, citing the experiences of their states as cautionary tales. Both Kansas and Oklahoma have had to close large budget deficits years after slashing taxes, forcing state governments to cut back on programs and services and prompting voter backlash at the polls.

Opposition from Lankford and Moran would likely derail the GOP’s hopes of passing the Senate bill by the end of the week. With all Democrats expected to oppose the plan, Republicans need votes from 50 out of their 52 members, and several others have either raised different objections or have yet to commit to backing the bill. Senators Ron Johnson of Wisconsin and Steve Daines of Montana, for example, are opposing the current version on the grounds that its benefits are too skewed toward corporations rather than small businesses. The Senate Budget Committee is expected to vote on the measure on Tuesday afternoon, and a vote to open debate on the floor could follow soon after.

Lankford said on Monday he wants the legislation to include some sort of “backstop” that would trigger an increase in tax rates if federal revenues fall short of projections in the next few years. “To me, the big issue is, how are we dealing with the debt and deficit? Do we have realistic numbers, and is there a backstop in the process just in case we don’t?” he told reporters at the Capitol. Republicans are relying on projections that their proposed cuts to the corporate and individual income-tax rates will boost economic growth by 0.4 percent a year. They believe that would offset the $1.5 trillion the bill would otherwise add to the debt.

But other fiscal analysts have disputed that forecast. The hawkish Committee for a Responsible Federal Budget predicts the GOP tax proposals will generate no more than 0.1 percent in annual economic growth—a difference that would amount to hundreds of billions in lost federal revenue. And in Oklahoma and Kansas, similarly rosy predictions never panned out, whether because the tax cuts were not as effective as Republican legislators believed they would be, or because a drop in oil-and-gas prices hammered the states’ economies.

“I think it’s important that we learn some of those lessons that we’ve seen in states and to be able to put into place, at the beginning, a backstop procedure to make sure that we’re guarding against this,” Lankford said.

The Kansas legislature, aided by a coalition of newly-elected moderate Republicans and Democrats, earlier this year actually rolled back the steep tax cuts enacted in 2011 and 2012 under conservative Governor Sam Brownback. Some of those GOP legislators have urged their counterparts in Congress to heed their example. The state’s House delegation ignored those warnings in voting to pass the GOP tax plan earlier this month. But Moran suggested he’d listened to their concerns during a town hall he held in Kansas over the weekend. “I’m also cognizant of what people saw happen in Kansas,” Moran said, according to the Topeka Capital-Journal. “The issue of tax cuts would be easier if you actually had faith that Congress would hold the line on spending. It’s two components. It’s how much revenue you take in and how much money you continue to spend.” While Republicans ultimately want to cut the size of government, Congress is likelier to increase spending during a year-end appropriations deal to accommodate President Trump’s demand for more money for the military.

Lankford did not specify his requested changes, and a spokesman for the senator said he was “not ready to talk about his proposal in detail.” The Senate bill already includes revenue triggers for certain, smaller provisions. But setting up additional possible tax increases would be complicated for a number of reasons, said Scott Greenberg, a senior analyst with the Tax Foundation. For one, if revenues fall off in the next few years, it could be a sign that the economy is in recession, and tax increases would likely slow the economy even further. And a trigger could be “self-fulfilling,” Senator Pat Toomey of Pennsylvania told Bloomberg: The mere possibility that taxes could go up in a few years could cause businesses not to make investments they would make if the new rates were sure to stay in place; that’s a major reason why Senate Republicans set their individual tax cuts to expire and made the corporate-rate cuts permanent.

While a number of states have used revenue thresholds to trigger tax cuts in the future, Greenberg told me he was not aware of triggers being used to reverse tax cuts that were already in place. Nor is it clear, he said, that Lankford’s idea would comply with the Senate’s strict rules requiring that the tax legislation deal only with spending and revenue in order to pass with a simple majority instead of a filibuster-proof 60 votes.

In addition to Moran and Lankford, Senators Jeff Flake of Arizona and Bob Corker of Tennessee have repeatedly warned party leaders that they won’t vote for a plan they believe adds too much to the debt. And Senators John McCain of Arizona and Susan Collins of Maine have not committed to the tax bill after opposing the GOP in its earlier attempts to unravel Obamacare.

Complicating the Republican challenge even further are the objections from Johnson and Daines, who want changes that could push the bill in the opposite direction from where Moran and Lankford want to see it go. Johnson and Daines want to expand exemptions for so-called “pass-through” businesses—companies whose owners file taxes as individuals. But deep cuts for those companies were in large part what blew a hole in Kansas’s deficit, since they prompted many more owners to structure their taxes to take advantage of the provision.

Trump and Senate Majority Leader Mitch McConnell are betting that the holdouts will come around—that the GOP’s urgent, even desperate, need for a legislative win will override concerns about particular provisions in the bill. That belief is undermined by polls showing the Republican tax proposals remain unpopular, and by an analysis by the nonpartisan Congressional Budget Office validating Democratic criticisms that the tax cuts flow disproportionately to the wealthy rather than lower- and middle-income earners.

Still, the GOP leaders’ bet might yet prove correct. The party’s internal critics do not seem as hardened as were Republican opponents during the health-care fight, and each of them has signaled a desire to ultimately vote in favor of the tax bill. The proposal won an important endorsement Monday from Senator Rand Paul of Kentucky, the conservative who has frustrated Trump and GOP leaders with his votes against the Obamacare and budget bills.

Johnson, Daines, and Corker all said they were in talks throughout the weekend with the White House and Senate leaders, and Trump met with a group of GOP senators for lunch on Monday to discuss changes. “The Tax Cut Bill is coming along very well, great support,” the president tweeted. “With just a few changes, some mathematical, the middle class and job producers can get even more in actual dollars and savings and the pass through provision becomes simpler and really works well!”

The question is how quickly Republicans can find the final pieces to their tax puzzle. Trump wants to sign a bill by Christmas, both to notch his first big policy achievement by the end of the year and to avoid the complication of losing a Republican seat in the Senate in January if Democrat Doug Jones defeats Roy Moore in Alabama next month. The House and Senate likely will still need to vote again on a final version. But to meet that deadline, the upper chamber first needs to pass its plan this week, and for the moment, Republicans look like they’re still a few votes short.