Wednesday, May 3, 2017

Opposition to BAT Still Strong. Anti-growth Argument Gaining Traction.

It is hard to know how to interpret current affairs in Washington. Trump has so scrambled the usual indicators that almost nothing follows logically.  Today, we are told that there will be a vote on health care legislation tomorrow.  After Rep. Fred Upton came out against the latest version of Obamacare repeal, he suddenly reversed course after he submitted an amendment protecting some folks with pre-existing conditions.  Upton's change of heart seems to have tipped the balance, if you believe what you read in the papers.

The vote on Obamacare repeal is both a test of House Republicans being able to get anything done . . . at all, and a vote of questionable significance. One reason it has been hard to corral 216 votes is that House Republicans worry that if the law does not survive in its present form after being rewritten by the Senate, the vote will be a death warrant, particularly for moderates.  Voting to disenfranchise 24 million people from health insurance right before a midterm election has to give most Congressmen pause.  And if said bill won't become law later, it is nothing more than a "sense of the House" bill, good for election fodder but not much more.  Republicans fear creating the conditions for either strong Republican opposition in the primaries, or strong Democratic opposition in the general election, or both.

What a plan.

And after healthcare passes out of the House, they will turn to a full year budget and then taxes.

And the Trump plan, however it gets changed, will need some funding sources.  I think it is political suicide, not to mention economic suicide, to even think about huge deficits right now.  I like candy as much as the next guy but this makes no sense.  Soooo, if they need money to make tax reform "work", the BAT remains an attractive option, particularly if you don't care what happens next.

[Side note:  When is a tax cut not a tax cut?  When it is revenue-neutral.  Don't be fooled by tax reallocation being marketed as a tax "cut".  If the revenue is neutral, that means every dollar of tax "reduction" is matched by a like tax increase.  Hence, revenue-neutral.  This hardly makes sense, and perhaps will explain why so many people are screaming about the BAT (it's the Republicans' tax increase part).  The folks who see their tax bills melting away are very eager for the plan, damn the consequences, and the rest of us (including consumers) are screaming bloody murder.]

Putting aside the Senate as firebreak, the BAT has another fatal flaw.  It is not part of the Trump plan because the White House (rightly) fears it is a growth suppressant.  The premise behind the Trump plan is that we have no fix for our economic problems unless we have sustained higher rates of growth.  The BAT was bounced on the rationale that price hikes and economic dislocation will dampen the hoped-for 3%+ growth.  The anti-growth aspect of the BAT is a fatal flaw in the economic reasoning of Mr. Trump, and will therefore be rejected.

Who knows whether this will make it more or less difficult to gather votes.  Washington is such an odd place today.  One would think this idea, particularly if it gets some air time, will weigh on the conscience of Congressmen making decisions on whether or not to support a future tax reform plan.  Nevertheless, it is in the background on this debate, and increasingly important in understanding which way the wind is blowing.

And if the growth argument doesn't prevail, Ted Olsen argues in today's Washington Post that there are serious Constitutional issues with the BAT.  Darn!

Stay tuned.  I know it's like a slow motion train wreck, but none of us can afford to turn away yet. Ryan and Brady have to concede first, something that seems to be far away.

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