×

Republicans don't have the guts to pass real tax reform

  • Those who think tax reform will be much easier for Republicans to pass than a health bill aren't being realistic.
  • Too many Republicans in Congress are worried about revenues and bad media coverage to stand up for conservative principles.
  • And the hard truth is that there's really no way to cut taxes without mostly benefiting the rich.
Speaker of the House Paul Ryan, R-Wis., conducts a news conference after a meeting of the House Republican Conference in the Capitol on June 7, 2017. House Majority Leader Kevin McCarthy, R-Calif., and Rep. Mia Love, R-Utah., also appear.
Tom Williams | CQ Roll Call | Getty Images
Speaker of the House Paul Ryan, R-Wis., conducts a news conference after a meeting of the House Republican Conference in the Capitol on June 7, 2017. House Majority Leader Kevin McCarthy, R-Calif., and Rep. Mia Love, R-Utah., also appear.

Now that the Republicans have failed to pass any kind of Obamacare repeal and booted the bad idea known as the Border Adjustment Tax to the curb, it's time for some real Make America Great Again kind of tax reform. Right?

Paul Ryan made the case on Fox News on Friday, saying, "I feel much more confident that we're going to stick the landing on tax reform because we have now said we have consensus, here's the framework, let's go get it done … We as Republicans, especially now, agree on how to do it. Health care is a good example. There's not a complete consensus on how best to do health-care reform. On tax reform, we have that consensus."

Sorry, I'm not buying the fact that they're going to "stick the landing" on tax reform.

That's because the health-care bill debacle and the Republican track record on tax issues so far this year prove that it's delusional to think this Congress and this White House can get past them this year, next year, or any year. Like a bad poker player, Congressional Republicans and the White House have exposed a number of "tells" that point to why tax reform is becoming a more and more distant dream.

Obamacare repeal process is telling

The biggest tell just came from the health-bill failure. The GOP spent the last seven years bashing Obamacare and promising to repeal and replace it as soon as it had control of the Congress and the White House. And yet, the best the Republicans could do was barely pass a motion — with a tie-breaking vote from Vice President Mike Pence no less — to just debate an Obamacare repeal effort. Then that effort and every other possible replacement bill they came up with failed to get even 50 votes.

This happened because the Republicans have become a party dominated by a mix of crony capitalists like Senate Majority Leader Mitch McConnell and federal funding addicts like Senators Lisa Murkowski and Susan Collins. They made meaningful health-care reform a dead letter from day one.

And these are the people we're expecting to stand up for tax reform?

If you want to sum up the sorry state of American politics right now, you could do so with one of the many variations of the following statement some conservatives have been making lately: "Democrats have no ideas and Republicans won't stand up for their own."

Republicans won't be able to stomach scrutiny over smaller middle class cuts

Now that we know the GOP didn't have enough members willing to stand up to insurance companies and other special interests in the Obamacare repeal effort, who can possibly expect them to hold up under the extreme scrutiny they'll face when the tax plan becomes more of a top story? A key part of that scrutiny will focus on what the middle class will and won't get out of it.

The Trump administration tax plan unveiled in April calls for individual tax brackets of 35 percent, 25 percent and 10 percent. It promotes a 15 percent tax rate for both corporations and small businesses known as "pass-throughs," whose income is taxed through the individual tax code on their owners' personal returns.

On Tuesday, President Trump made a bit of an amendment to that by saying in a Wall Street Journal interview:

"The people I care most about are the middle-income people in this country, who have gotten screwed. And if there's upward revision it's going to be on high-income people."

The problem with that promise is that the middle class is already not paying much of the total federal tax burden as it is. For example, in 2013, (the most recent year where we have a full Congressional Budget Office report), the middle quintile— those people making 10 percent above and 10 percent below the mean household income of $69,700 —paid only 4 percent of all federal income taxes. It's the rich, like the top 10 percent of income earners, who pay 71 percent of the federal income taxes. (To be clear, we're only talking about federal income taxes.) There really can't be any significant federal tax cutting plan without benefiting them the most. Real middle class tax relief can really only come from property tax and state income tax cuts.

From a public relations perspective, that's the tough trick. The Democrats have made cries of "The Republicans just want to give tax breaks to their billionaire friends!" more than just a mantra for more than 30 years. And it has an impact that many Republicans haven't shown the stomach for that criticism once it inevitably takes hold in the general news media. President George W. Bush and the Republican Congress working under him from 2001-2006 proved that with half measures like temporary individual tax rate cuts and one brief corporate tax holiday. Efforts to make those cuts permanent and more substantial wilted under Democrat opposition and media scrutiny despite Republican majorities in Congress at the time.

And President Trump is now doing what a lot of Republicans have been doing for years, which is pre-emptively and publicly weakening his message by negotiating against himself with promises like the one he made on Tuesday in that Wall Street Journal interview. Some could see that statement about the middle class getting "screwed" as a strong stance from the president, but based on the GOP history it really sounds like Mr. Trump is already scared of the backlash his tax cut plan is likely to get when it finally becomes the top story.

If President Trump and the Republicans really believe that lower taxes will grow the economy and help people at every income level, they're going to have to be able to stomach the backlash over big tax cuts and make a clear case to the American people for those cuts. In other words, they're going to have to effectively preach their own long-held beliefs.

You'll have to pardon me if I'm pessimistic about the chances of that happening —especially since the last Republican to do that effectively was Ronald Reagan more than 30 years ago. President Trump wasn't able to promote the Obamacare repeal effort convincingly, and he doesn't seem like he'll be much better on taxes.

Too many Republicans think like Democrats

That lack of guts leads Republicans down the easier path of thinking like Democrats when it comes to the way they look at our taxpayer money. For example, it takes guts to get serious about making the spending cuts that are the only way to fix our debt problems. But Republicans seem just as likely as Democrats to avoid the hard truths at all costs.

Just look at the Border Adjustment Tax story. Enough Republicans were worried about lost tax revenues from the tax cuts in the reform plan, that they pushed a whopping new 20 percent tax on imports. Just think about that for a moment. The party that's supposedly for lower taxes is so worried about revenue losses that a decent number of its members wanted a massive new tax to make up for it. With Republicans like them, who needs Democrats? Yes, the plan is now not part of the GOP tax plan. But the disease within much of the GOP that produced that nonsense is still alive.

This all comes from a cowardly decision to keep pushing a fundamental misunderstanding of the basic math behind our nation's debt problems. Our deficits aren't out of control because we're not bringing in enough revenue. In fact, incoming federal revenues keep breaking record after record. They're a problem because government spending is out of control and rising faster than that avalanche of new tax receipts. But Republicans are basically just as squeamish about cutting spending as Democrats and they simply don't have the guts to do it. For those who think the bipartisan policy of taxing the rich more is born out of some kind of belief in fairness, don't be fooled. Washington politicians tax the rich more because they want more money to help them avoid making unpopular but responsible budget cuts.

Neither party has anyone courageous enough to make the real spending cuts we need to make to the untouchable trio of Social Security, Medicare, and defense.

Does America need tax cuts and tax reform? Absolutely. Do the Republicans need to prove they can get something significant this year? Definitely. But based on their recent and long-term track record, the assumption that the GOP and this White House will have more success on taxes is an absolute and definite stretch.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.