Sunday, April 2, 2017

Tax reform, tradeoffs and the Freedom Caucus

Getting back to tax reform and why it won't happen...

The Freedom Caucus.

Freedom from legislation.

Tax reform, as I've been saying, is all about tradeoffs.  The same can be said for nearly all policy decisions, but tax reform forces you to confront the tradeoffs directly.  In order to maintain revenue neutrality, cutting nominal rates requires eliminating deductions.  Cutting someone's tax burden requires raising someone else's.  What motivates the Freedom Caucus?  Ideologically, they aren't really all that different from Paul Ryan.  We use a -1 to +1 ideology scale to study Members of Congress, based on their voting behavior (called a NOMINATE score) constructed by Keith Poole and Howard Rosenthal, and on that scale, Paul Ryan is at .8580.  Mark Meadows, the Chair of the Freedom Caucus, is at .8330.  Their disagreement with Ryan isn't about ideology.  They don't disagree on policy.  At all.  They disagree about the appropriateness of compromise and concession to a little thing I like to call "reality."  The Freedom Caucus opposes such things at all times.

Tax reform is intrinsically compromise.  Take away the tax increases and you are left with... tax cuts!  So, what will the Freedom Caucus see when shown a tax reform proposal?  A bill with some tax increases and some tax cuts.  What will they want to do?  Get rid of the tax increases.  The bill ceases to be tax reform, and becomes a tax cut.  One can simplify the tax code at a lower nominal rate, making it still a tax reform, but if the proposal isn't revenue neutral, it isn't eligible for budget reconciliation rules, and it can be filibustered in the Senate, unless McConnell goes nuclear for it, but the point is that we know exactly how the Freedom Caucus will react to a true tax reform package.  They will insist that it be turned into something ineligible for budget reconciliation rules.

And if Paul Ryan ignores the Freedom Caucus and seeks Democratic support for the bill?

The Freedom Caucus does to Ryan what they did to Boehner.  Ryan knows that, so he won't do it.  He can't work with Democrats for fear of being removed as Speaker, and the Freedom Caucus won't let him craft a bill that will be eligible for reconciliation rules because they don't accept the principle of making tradeoffs.

Tax reform?  Yeah, sure.

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