If a handful of Senate Republicans join most Democrats in voting for the bill, Congress could cut taxes for businesses and parents. In a strange reversal of their usual priorities, Republicans are suddenly blocking widely supported tax cuts.
Has the Republican Party suddenly become the party of tax hikes? Well, not exactly. But if they get it wrong, tax increases could be the de facto result of a trick that's just a little too clever.
In January, the House of Representatives passed a $78 billion tax cut in a remarkable act of bipartisanship. Republicans passed three business tax cuts aimed at spurring investment and innovation. Democrats expanded the child tax credit for low-income families. Despite complaints from each side that the other was receiving too many freebies, the bill went to the Senate, where it could be an opportunity to do something rare.
But for some Senate Republicans, doing nothing now seems better. Bloomberg reported that several Republican senators have indicated they do not want to vote on the tax cut bill. One of the opposition leaders, Mike Crapo of Idaho, is influential because he is the top Republican on the Senate Finance Committee. Crapo reportedly joined Minority Leader Mitch McConnell and John Thune of South Dakota, who is vying to replace McConnell as minority leader, in killing the bill. He said he persuaded him to do so.
Senate Republicans have three main objections. One is that he doesn't want President Biden to have another legislative success to brag about as he seeks re-election. Second, some Republicans, including Mr. Crapo, believe that expanding the child tax credit would be a terrible expansion of the “welfare state.” Third, if the November election goes their way, Republicans could get more tax cuts, or even the cuts they want without the child tax credit they loathe.
Democrats only have a two-vote majority in the Senate, and they would need at least nine Republican votes to force a vote through the filibuster and pass the bill. So several things can happen. The bill could either be rejected without a vote in the Senate, or it could be voted on but fall short of the threshold for passage. The Senate could change the bill to address Republican concerns and pass it. But then the new version would have to go back to the House of Commons, where it would face a whole new set of obstacles to passage.
The bottom line is that this is probably too much in an election year, so Republicans are likely to actually repeal the tax cut bill that the business lobby claims is essential. Will it work? After the 2024 election, will Republicans actually be able to obtain favorable policies that are more in line with their wishes?
The first scenario that could yield a better deal is if Donald Trump defeats Joe Biden in the presidential election, which the market predicts has about a 45% chance. If Trump wins, Republicans are likely to take control of the Senate, and Republicans are also likely to maintain a majority in the House of Representatives. The probability of a three-way Republican victory is probably 40%.
If that were the outcome, the only leverage Democrats would have would be the Senate filibuster, assuming they hold at least 40 seats in the Senate. But there are ways for Republicans to bypass the filibuster and pass larger tax and budget bills that go far beyond the current bill in the Senate and cut taxes even further than the sweeping 2017 tax bill.
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Even if Biden succeeds in re-election (a 51% chance, according to prediction markets), the chances of Republicans winning the Senate are slim, as Democrats are defending far more competitive seats than Republicans this cycle. There's still plenty. There is about a 40% chance that the election results in a second term for Biden and that one or both chambers of Congress are controlled by Republicans.
In that scenario, Republicans could actually have more influence than they currently have. With the 2017 personal tax cuts set to expire at the end of 2025, there will be overwhelming pressure to continue tax cuts for low-income workers. If Republicans control just one House, they could have enough influence to demand tax cuts of their choice in exchange for Biden's demand for an extension of tax cuts for ordinary people.
Republicans can still use the filibuster in the Senate, but with Democrats in control of Congress, Biden is unlikely to win. Still, Democrats could use the filibuster avoidance mechanism to pass at least one major tax bill on a partisan basis without Republican intervention.
Overall, the post-election period will likely favor Republicans who believe they can get a better tax deal than before. However, there is still a chance that the impending business tax cut cannot be passed.
Needless to say, the Republican strategy is highly cynical in that it prioritizes what is good for the party and its chances of taking power over what is good for the country. If you don't already hate Congress, you now have permission to do so.
Of course, Democrats are playing that game, too, and the way the Republicans play the game back on themselves is to convince voters that the Republicans are only looking out for themselves at the expense of ordinary people. Democrat Harry Truman famously won re-election in 1948 against long odds by campaigning against a “do-nothing Republican Congress.”
Mr. Biden is already trying to do that by tearing Mr. Trump and his fellow Republicans apart as supporters of billionaires who want to cut taxes for the wealthy and cuts benefits to working people. But Congress is a hive of dysfunction, and it can be difficult to differentiate between doing something and doing nothing.
Rick Newman is a senior columnist in the United States. Yahoo Finance. Follow him on Twitter @rickjnewman.
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