Early Returns

The Tax Reform Pipe Dream

Jonathan Bernstein's morning links.

Kevin Brady, optimist.

Photographer: Chip Somodevilla/Getty Images

The House Ways and Means Committee has its first scheduled hearing today on tax reform. On the good side -- and this really is good -- that's already more hearings than the mess of a health-care bill received. I say first, but in fact it's the first in this Congress; in recent years, Ways and Means, under Republican leadership, has held hearings and worked pretty hard to draft bills. As a frequent critic of House Republicans, I have to say that they're doing this the right way.

That said: I really have no idea what they think they're doing. Ways and Means Chairman Kevin Brady says he's absolutely dedicated to tax reform, not just tax cuts. So does Senate Majority Leader Mitch McConnell. That means they really intend to eliminate significant tax advantages while lowering rates overall and, as McConnell stressed to Bloomberg's Laura Litvan, achieving overall revenue neutrality. Now, their definition of neutrality may include a healthy dose of everyone's friend Rosy Scenario (that is, optimistic assumptions about the economy and how much it will produce in tax revenue) as well as Republican favorite Dynamic Scoring (which will add further optimistic assumptions about how much growth tax adjustments will produce). Nevertheless, they're not going to get the congressional watchdogs to fudge trillions of dollars in lost revenues, and, more to the point, they sound fairly determined to make this work.

We'll see. I've always believed that partisan tax reform is just about impossible: There are too many particular interests harmed by closing "loopholes" to keep the entire party's conference on board, and with Democrats almost certainly opposed to a Republican-flavored bill (which will almost certainly be better for the wealthy than for middle-class and working-class families), there just aren't enough Republicans to spare if a few drop out because of provisions that hurt their constituents. The obvious compromise to keep all Republicans on board is to just cut taxes and not pay for it. 

Perhaps that's still where we'll wind up, and Republican leaders are just maintaining happy deficit talk until push comes to shove. Perhaps they really have caught deficit-reduction religion. Or perhaps they really don't realize just how difficult real revenue-neutral tax reform is to pass, especially a partisan version of it. To tell the truth, I'm more baffled than I expected to be. I still think the most likely outcome is a big tax cut, not reform. But I'm upgrading the chances that the whole effort goes south. 

1. Kevin Evans and Bryan Marshall at the Monkey Cage on Donald Trump's signing statements

2. Leah Litman at Take Care has what I was looking for: a good analysis of the scope of the special counsel's charge to investigate Russia-related wrongdoing. Very helpful. And she agrees that a congressional investigation is still needed. 

3. Sarah Posner at the Plum Line on Trump's upcoming Islam speech

4. Heather Hurlburt at New York magazine on leaking secrets -- and Trump.

5. And Ashley Parker and Abby Phillip at the Washington Post on working in the Trump White House

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    To contact the author of this story:
    Jonathan Bernstein at jbernstein62@bloomberg.net

    To contact the editor responsible for this story:
    Brooke Sample at bsample1@bloomberg.net

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