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Tax reform by Christmas? Not unless the GOP 'Grinch' makes these changes—and fast

  • The latest changes to the Senate tax reform bill proves the GOP is making too many wrong moves.
  • Unless the bill starts giving more benefits to the middle class and individuals, it won't pass by Christmas.
  • The big tax cuts for corporations make sense, so why won't the Republicans extend them to everyone else?

Treasury Secretary Steven Mnuchin says he expects the GOP tax reform bill to be passed and sent to President Trump's desk by Christmas.

But you don't have to be the Grinch to pour cold water on that prediction. Especially since Republicans in the Senate keep showing their cowardly and self-interested cards.

The latest example of that came this weekend as the Republicans backtracked and decided to protect big mutual funds from a change to the tax code in the Senate bill, but kept that potential hike in place for individual investors.

It's uncanny how clearly the congressional establishment in both parties keep showing us that the real divide in America isn't right vs. left or even rich vs. poor, but the political class vs. everyone else.

It's the same problem that doomed the Obamacare repeal efforts. After seven years of promising to get rid of the Affordable Care Act once they had full control of Congress and the White House, leadership fumbled. Senate Majority Leader Mitch McConnell worked more closely with big insurance company lobbyists than many of his Senate colleagues. Protecting the interest of that lobby was clearly his top priority and repeal failed because of it.

"It's uncanny how clearly the congressional establishment in both parties keep showing us that the real divide in America isn't right vs. left or even rich vs. poor, but the political class vs. everyone else."

This mutual fund exemption is another example of the GOP playing the wrong game of favorites. It doesn't take a political genius to know that selling the public on the tax reform plan requires more breaks and emphasis on the middle class.

But that leads us to the second problem with this tax reform process: cowardice. I've already noted several times that the congressional Republicans' fear of slashing spending creates an unhealthy obsession with raising tax revenue. And that leads to a gallery filled with all kinds of revenue raising schemes that are essentially deal breakers for much of the country. They include nixing state and local tax deductions, capping mortgage interest deductions, and more. Oh but don't forget, those state and local tax deductions would also still be allowed for businesses! Individuals can go pound sand.

Yes, it's true that some of the revenue raising plans would hit the relatively rich individuals with higher taxes. But if the Republican tax plan is so revenue-obsessed that it resorts to class warfare, who needs Democrats?

The most solid argument in the GOP tax reform plan remains the understanding that cutting corporate tax rates from 35 percent to 20 percent will increase domestic investment and boost wages. That's so obvious that even people otherwise critical of the Trump administration like Apple's Tim Cook are solidly behind the corporate tax cut idea.

But once the tax reform bills take care of the politicians' corporate buddies, the logic of letting productive Americans keep and invest more of their earned money seems to go out the window. What's good for the corporations, doesn't seem to be good for the individual. And the reason is painfully obvious: Individuals don't have lobbyists and PACs to help make sure Congress is looking out for them.

Remember, this isn't about protecting the rich. The new tax reform plans have plenty of booby traps for high individual income earners, including a de facto fourth tax bracket of 39.6 percent. And the individual investors who will be hurt by the new tax change the mutual funds are exempted from aren't going to be middle class or poor either. But the key word here is "individuals." And politicians really don't care about them.

The bad news for them and the tax reform plan's chances of passing is that they should care. It's going to be hard to sell this tax reform bill well enough to get all the obstinate and wary Republican senators in that slim four-seat GOP majority on the "yes" side.

The only way to do that will be to add more tax breaks for the middle class and get every key Republican from President Donald Trump on down to make middle class and individual tax breaks the key part of their pitch to the public. And that pitch needs to include a credible argument that the smart tax breaks going to the big corporations are at least somewhat being duplicated on the middle class/individual side. Otherwise, the Democrats will have a credible argument that GOP tax reform is all about making everyone else pay for tax cuts for big corporations and special interests.

With just over a month until Christmas, the Senate just signaled it's not even going in the right direction. It's so far off the mark that the only thing that could save it would be a president who was focused on fixing the problems. The bad news is President Trump seems more focused on getting the bill passed than making its parts more worth passing in the first place, similarly to how he handled the health bills.

Don't be fooled by last week's successful House vote. The Senate is a totally different animal with more than just the three wayward total Republicans who could kill the bill. The big corporations are already on board with this plan, the best way to save it is to stop worrying about them and revenue projections and put more in this bill for the middle class and the most productive individual Americans before it's too late.

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

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