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After Healthcare Failure, Can GOP Now Muster Tax Reform?

March 27, 2017 By E.J. Smith - Your Survival Guy

With the epic failure of Paul Ryan’s healthcare reform bill in the House , can the GOP get it together enough to pass tax reform? The editors of The Wall Street Journal write that prospects for a tax bill have gotten much harder.

President Trump campaigned on breaking Washington gridlock, increasing economic growth and lifting American incomes. The health collapse undermines those pledges. The legislative failure is obvious, but less appreciated is that House Speaker Paul Ryan’s reform included a pro-growth tax cut and major improvements in work incentives. The 3.8-percentage-point cut in taxes on capital income would have been a substantial increase in after-tax return on investment, nearly half of the eight-point cut in the capital-gains tax rate that helped propel growth after 1997.

Now that’s dead, and so is the replacement for the especially high marginal-tax-rate cliff built into ObamaCare’s subsidies. These steep tax cliffs as subsidies phase out are a major hindrance to work, as University of Chicago economist Casey Mulligan has shown. The Ryan bill would have been a significant boost to economic growth and labor participation. The critique that it would not have helped “Trump voters” was willfully false coming from the left and uninformed on the right.

This lost opportunity now makes tax reform even more important as a growth driver, but the health-reform failure also hurt tax reform in another major way. The Ryan bill would have reduced the budget baseline for tax reform by some $1 trillion over 10 years. This means that suddenly Republicans will have to find $1 trillion more in loopholes to close or taxes to raise if they want their reduction in tax rates to be budget neutral.

That means picking more fights with industries that fear they’ll be tax-reform losers. Take the irony of Senator Tom Cotton of Arkansas. He trashed the House health bill far and wide, but he also represents Wal-Mart, which hates the House GOP’s border-adjustment tax proposal that would raise some $1 trillion in revenue to pay for lower tax rates. By helping to kill the Ryan health bill, Mr. Cotton has now killed $1 trillion in tax and spending cuts that would have made it easier to pass a tax reform without the border-adjustment fee. We look forward to seeing the Senator’s revenue substitute.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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