The voices of Tax Policy Center's researchers and staff
The 116th Congress is going to look very different from the 115th. But don’t expect tax and budget policy to change much from 2018 to 2019. Despite the Democratic takeover of the House, there is no chance Congress will repeal or even fundamentally rewrite the Tax Cuts and Jobs Act (TCJA). Similarly, it is highly unlikely that Congress will do much to slow the burgeoning growth of the national debt, barring some dramatic outside event such as a steep rise in interest rates.
Yet, yesterday’s election will create a very different policy environment. With Democrats picking up a net of at least 26 House seats and a new majority, they are likely to focus on a handful of top priorities that drove their voters to the polls in record numbers--topped by health care and immigration. And oversight of the Trump Administration. Lots of oversight.
They’ll demand Trump’s personal tax returns, a request likely to land in court, and poke into a number of regulatory corners. They’ll also likely pass a fistful of message bills. These will never pass the Senate but will build a legislative record for the 2020 elections.
When it comes to taxes, the House Democratic leadership will have to decide whether to follow the GOP’s hyperpartisan playbook or look for opportunities to find consensus on some modest bills, or, perhaps, a bit of both. The new Democratic caucus is a mix of hard-left, no-compromise activists and get-something-done pragmatists. It may take time to design a strategy that satisfies both factions.
For its part, the House GOP caucus is not only smaller, but more conservative. Many of the seats Democrats picked up had been held by relatively moderate Republicans from suburban districts. Will that more hardline caucus be willing to work with Democrats to craft bipartisan bills? It seems unlikely.
The new chair of the House Ways & Means Committee will be Richard E. Neal (D-MA). Neal, universally known as Richie, represents south central Massachusetts. A 30-year veteran of the House, Neal has backed expanded tax breaks for retirement savings, health care, and tuition. On trade, Neal leans toward the hawkish and supports deals that favor worker and environmental protections.
Despite dire warnings from President Trump, there is no chance Neal and the House Democrats will try to repeal the TCJA. They will need to address some provisions that are due to expire next year and must decide what to do about errors and inconsistencies in the TCJA that Congress never did address in 2018.
Perhaps their biggest challenge is what to do about the TCJA’s cap on the state and local tax (SALT) deduction. Repealing the cap was a top priority for Blue State Democrats but it is hardly a middle-income tax cut, and it would be expensive. Will Democrats want to kick off their agenda with a bill that cuts taxes mostly for high-income people in a few states? The Tax Policy Center estimates that three-quarters of the benefit of the SALT deduction goes to households making $153,000 or more.
If they want to go big, Democrats could try to outdo Trump. The president promised a 10 percent tax cut for the middle-class. House Democrats could push a big middle-income tax cut of their own. Several Democrats already have proposed bills to expand or even reimagine the Earned Income Tax Credit. Some would fund those tax cuts with unspecified increases in taxes on corporations and high-income households.
The Democrats probably could use their House majority to pass legislation to roll back parts of the TCJA but such a bill would certainly die in the Senate, where Republicans have increased their majority. An even if the Senate somehow passed the measure, Trump surely would veto it.
While the Senate remains in Republican hands, the Finance Committee will get a new chair as well. Orrin Hatch has retired and his likely successor is a familiar face to committee watchers—Iowa’s Chuck Grassley, who chaired the panel in 2001 and again from 2003-2006.
In his past tenure as chair, Grassley aggressively used the panel’s oversight function. But he’s been an unwavering backer of President Trump and isn’t likely to be a very aggressive watchdog over the administration in 2019.
Replacing the ACA’s tax penalty
There are some modest tax bills Congress could pass. For example, this year the House and Senate both expressed interest in reworking tax incentives for retirement and other savings accounts. While the bills are quite different, lawmakers could cobble together some elements of consensus--if they want to.
Health care was policy issue #1 for Democratic voters. House Democrats are sure to push legislation to reverse some of Trump’s administrative efforts to kill the Affordable Care Act. And in the last week of the campaign, even many Republicans were scrambling to convince voters that they too want to protect insurance coverage for those with pre-existing conditions (though some voted dozens of times to kill the ACA).
That creates an opening, if lawmakers want to take it. Insurers will not guaranty coverage for all unless the law includes strong incentives for people to buy coverage before they need it. The ACA’s incentive was its much-reviled tax penalty for those without insurance. But Congress could adopt other mechanisms, such as a provision to temporarily exclude pre-existing conditions from insurance if consumers delay buying coverage.
But that assumes lawmakers want to reach agreement. With the 2020 election season ready to begin within days, that will be exceedingly unlikely.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Jacquelyn Martin/AP Photo