Failure to pass tax reform would be ‘catastrophic’ for the GOP

  • The GOP has campaigned on tax reform for a decade.
  • Failure to pass tax reform would be catastrophic for the GOP and the economy.
  • When it comes to the economy, reforming the tax code isn't optional.
  • The political consequences pale in comparison to the economic ones.
Eric Cantor
David Orrell | CNBC
Eric Cantor

Since last November's election, the stock market has posted record highs, cumulatively lifting the value of stock holdings — including millions of Americans retirement savings — by trillions of dollars. After the election there was a sustained jump in optimism about the future of the economy – as captured in surveys of individuals and small and mid-size business owners.

Historically, such economic optimism would show up in the approval ratings of our president, with the economic outlook and the president's approval rising and falling together. That isn't happening today. A common explanation is that, more and more Americans are separating their views of the commander in chief from their views of the economy.

Yet in traveling the country and talking to business people in companies of all sizes, there is something else at work: no matter what they think of the president today, virtually everyone I meet is betting the president can do one big historic thing: sign the first major tax reform in 31 years into law. That, combined with the deregulatory efforts already underway, are reason enough for optimism about the future economy.

"Failing to successfully act on tax reform in a unified Republican government, after the party campaigned on reform for a decade, would be catastrophic."

Small business owners are rightfully up in arms about tax rates that can consume more than 40 cents out of every dollar of profit. Such punitive tax rates are a major disincentive to taking the risk inherent in starting a company in the first place or expanding one already up and running.

Larger companies face the highest corporate tax rate in the industrialized world and a structure that taxes the worldwide income of American companies when virtually every other nation taxes companies only on what they earn at home. The result: foreign-based companies have a significant competitive advantage over American companies.

President Trump and Congressional Republicans ran on a pledge to enact tax reform that would fix these problems and help grow our economy. With unified Republican control of Congress and the White House and the special budget process known as reconciliation that allows a tax bill to avoid a Senate filibuster, there is no practical reason for the president and members of Congress not to make good on their pledge. And that is what American business owners, workers, and families are counting on.

Yet, increasingly there is reason to question whether or not tax reform can actually become a reality.

It isn't just the difficulties Republicans have had coming together on health care.

While we are only 6 months into President Trump's term, we are one-fourth of the way through this two-year Congress and in practical terms, only six months from the first primaries of the 2018 election. In other words, time is quickly slipping away and a tax reform bill hasn't even been introduced in Congress or released by the administration.

From my time in Congress, I know that much of the work of getting a proposal enacted into law is what happens behind the scenes and when a proposal does come together, it can come together and be enacted relatively quickly. I still believe Congress can and will pass a significant tax reform bill this year.

But it is worth contemplating for a moment the consequences if I am wrong; if tax reform isn't enacted into law.

The political consequences are relatively straightforward. It isn't just that Republicans will have failed to deliver on a major campaign pledge, they will have failed on a commitment that is core to the identity of the party. Since Ronald Reagan, Republicans have been the party of pro-growth tax reform. Major tax cuts / reforms were enacted in 1981 and 1986. In the 1990s the new Republican majority in Congress lowered capital gains tax rates and created the per child tax credit. In 2001 and 2003, George W. Bush signed major tax cuts into law.

Failing to successfully act on tax reform in a unified Republican government, after the party campaigned on reform for a decade, would be catastrophic.

The political consequences pale in comparison to the economic ones. We have endured over ten years of below 3-percent economic growth. While America has had plenty of recessions, we have never experienced a lost decade before. Many economists are predicting that this is the new normal. And absent some big change, they are probably right.

While we need to get a lot of policies right to get back to the growth of the 1980s or 1990s, it is impossible to get there without comprehensive pro-growth tax reform.

Tax reform offers the promise of greater growth that creates new jobs and raises wages and take-home pay. Without tax reform, a decade of low growth could easily become a generation of stagnation. That would put a death knell in the basic American promise that each generation will be better off than the last.

When it comes to the economy, reforming the tax code isn't optional.

In the world of business, if something must be done, it will be done. American families and businesses are counting on the fact that, when it comes to tax reform, that maxim holds true in Washington. That partially explains their optimism about the economy. The clock is ticking and it is up to Republicans to turn that optimism into reality.

Commentary by Eric Cantor, the former House majority leader, who served as the U.S. representative for Virginia's 7th congressional district from 2001 to 2014. He is currently vice chairman and managing director at Moelis and Co. Follow him on Twitter @EricCantor.

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