Tax breaks and politics

Republicans have been banking all year on the idea that in November 2018 voters will look at a roaring economy whose flames have been stoked by a gigantic tax cut and reward the party that passed it. My sense: The impact will be neither as positive for GOP fortunes as Republicans hope nor as negative as Democrats desire.

Businesses and business owners will clearly like the GOP tax-cut bill’s large rate reductions for corporations large and small. They are a not-inconsiderable part of the Republican voting bloc and an enormous share of the GOP donor class. They will reward House and Senate candidates with cash and votes over the next 11 months.

A politically successful act also has to motivate independents to look more kindly on you. Obamacare’s passage motivated loyal Democrats but alienated many independent voters, leading directly to the 2010 debacle that wiped out Democratic supermajorities in both houses. Under the tax-cut bill, some independent voters will see a tax increase, and these are the very group of voters who have been moving away from the Republicans over the last year.

The bill also falls down in giving a direct benefit to the voters who made Trump’s surprising victory possible, the working-class voters who crossed over from the Democrats to back Trump and his party. The bill does little to cut their taxes; indeed, the House version will increase taxes on some of them. The Senate had an opportunity to sharply cut taxes for working-class families, but it voted down Sens. Marco Rubio and Mike Lee’s child tax credit amendment, which would have given many of them up to a $2,000 reduction. Working-class voters thus have no skin in this game.

That’s a big problem for Republicans, as they now depend on large margins from working-class voters in many key districts and states. But without Trump on the ballot, their turnout was down in 2017 in the Virginia and New Jersey governors’ races. The final bill could change this by reducing payroll taxes, but thus far the congressional leadership has vociferously opposed any such attempt.

Republicans’ failure to make the most of their biggest legislative priority does not, however, mean that Democrats are sitting pretty. Polls showing the bill to be heavily unpopular also show that the vast majority of people who dislike it are Democrats or Democratic-leaning independents. They are already energized to vote and would be highly unlikely to support Republicans in any event.

The core Democratic attack on the measure—that it is a massive tax cut for the rich—has rarely moved voters in the past who are not already motivated to vote Democratic. Without an economic downturn or another way of discussing the bill that can break out of the usual left-versus-right argument, Democratic attacks on the measure will not likely gain them many votes.

It may seem odd that the biggest weapon in the GOP’s quiver can produce such little political effect. But on further reflection, it might seem odder that the leadership would think it would. Politically successful tax cuts on the state and national level have always made many more voters direct winners than this one does. President Ronald Reagan’s two tax cuts both removed millions of lower-income voters from the tax rolls and cut the top rate, a formula President George W. Bush’s 2001 and 2003 tax cuts followed. By refusing to give millions of people a significant tax cut while hiking taxes on a few million more, the GOP has put all of its political bets on the supply-side theory that tax cuts on capital can turbocharge growth.