The Democrats' Response

The Democrats' Response

Far from giving Republicans bragging rights, the Tax Act presents Democrats with a potent line of attack. But can they stay united when they put forth their own alternatives?

June 21, 2018


This article appears in the Summer 2018 issue of The American Prospect magazine. Subscribe here

On a summer day in 1981, a disconsolate House Speaker Tip O’Neill sat “slumped in a chair far to the rear of the House floor” (as Thomas Edsall recalled the scene in his 1984 book The New Politics of Inequality) and watched his colleagues vote to end the New Deal order. The vote was on a Republican substitute to a tax bill sent to the floor by the Democratic majority on the House Ways and Means Committee; the substitute cut taxes by $749 billion, bringing down the rate on the highest incomes from 70 percent to 50 percent, lowering the capital gains tax, and reducing the inheritance tax—the first tax reduction since the 1920s, Edsall wrote, “skewed in favor of the rich.”

To O’Neill, the unkindest cut was not that the Republican measure passed, but that it passed with the support of 48 of his fellow House Democrats. Most of them represented majority-white districts in the South—districts that today are represented by Republicans—but some Northern-state Democrats voted for the substitute as well. And when the bill went over to the Senate, which unlike the House was under Republican control, 37 Democrats voted for it on final passage, while just ten voted no.

U.S. National Archives and Records Administration

In the decades since Ronald Reagan's election and the first tax cut skewed in favor of the wealthy since the 1920s, Democratic support for tax cuts for the rich has evaporated.  

Plainly, Ronald Reagan’s victory on an anti-tax platform and the GOP capture of the Senate in the 1980 election had shaken many of O’Neill’s fellow Democrats. So had California voters’ passage of Proposition 13 in 1978, which heralded an era of tax and spending rollbacks. That era was still going strong in 2001, when another newly elected Republican president, George W. Bush, signed into law a bill that further reduced the taxes on high-income Americans—this time, with the votes of 12 Democratic senators. The Revolt of the Haves (the all-too-prophetic title of my colleague Robert Kuttner’s 1979 book on Proposition 13) had not yet run its course.

For Republicans, apparently, it will never run its course. The tax cut that all but 12 Republicans voted for and Donald Trump signed earlier in this session remains the one significant piece of legislation that an otherwise fractious GOP could agree upon—and, in grand Republican tradition, it will deliver 83 percent of its benefits to the wealthiest 1 percent by 2027. But this time around, no Democrat in either house supported the legislation. Even though many Democrats had at times supported lowering corporate tax rates, the GOP bill was so overwhelmingly tilted toward the rich that no Democrat crossed party lines on the vote.

The Democrats’ solidarity was doubtless strengthened by their battles against Trump, and “their success in defeating the Republicans’ attempts to repeal the Affordable Care Act,” says Frank Clemente, executive director of Americans for Tax Fairness (ATF), “really stiffened their spines.” More than that, their unanimity was a reflection of the political transformations their party and nation had undergone since 1981, with the Democrats no longer representing any part of the white South, and with the share of party members identifying themselves as liberals growing from 28 percent in 2000 to 46 percent today. It was also a reflection of the economic transformation the nation had undergone since that 1981 tax cut, with the era of broadly shared prosperity now a dim memory, with the decades-long stagnation of wages, and with levels of economic inequality not seen since just before the 1929 crash.

Their opposition to the tax cut notwithstanding, it has taken the Democrats a while to figure out which arguments against the cuts work best on the 2018 campaign trail. And while they now appear to have reached a consensus on that, they have been slow to specify what changes they’d make to the law should they return to power. Their reticence is partly due to their calculation that such proposals might cost them votes come November. But it’s also due to their disagreement on what changes they should make. Though revisiting the cuts to corporations may look to be politically unassailable to voters, there are still many centrist Democrats who fear for their campaign funding should the party offend their corporate donors.

 

DESPITE ALL THE COVERAGE the 2017 Republican Tax Act received in the media, despite all the hype about corporations passing along their new savings to their workers, when Democrats talked to their constituents in town meetings and neighborhood coffee shops in the weeks and months following the bill’s enactment, they made an important discovery: Most people didn’t think the cut mattered very much to their own pocketbooks. Indeed, it was far from the top of list of issues that concerned them.

“If I didn’t raise the tax cut at my town halls, I don’t think it would even come up,” says Oregon Senator Jeff Merkley. “People bring up gun safety, the need for living-wage jobs, the cost of housing and education. And they bring up corruption—the stranglehold that money has on our politics.”

And the tax cut, says Merkley, is a perfect illustration of that corruption. “I describe the bill as a reflection of the fundamental corruption of Congress,” he says. “I say it borrowed $1.5 trillion from your kids to give 80 percent of that to the richest Americans. I get hardly any pushback when I say that—even in the most conservative counties.”

Precisely because the cut confirms most Americans’ beliefs that big money controls politics and that corporations don’t pass along their profits to their workers, Democrats have seized upon a number of the bill’s enrich-the-rich particulars, and on the way it illustrates how wealth does not trickle down. The record level of share buybacks and mergers on which corporations have spent their new largesse has now become a standard Democratic talking point. In mid-May, for instance, Democratic House Leader Nancy Pelosi responded to a study that showed S&P 500 companies are on track to spend $1 trillion on buybacks and dividends this year by issuing a broadside against both the law and American corporate behavior. Contrary to Republican claims, she pointed out, the tax savings were going to “wealthy investors instead of raising wages or creating jobs.” (It’s not clear that the structural deficiencies of American capitalism would have become quite such a Democratic mantra absent the Tax Act.)

Another widely held American belief underpins the Democrats’ other line of attack against the cuts: That having just added mightily to the nation’s fiscal deficit, the Republicans will use that deficit as a pretext for going after Medicare and Medicaid. That charge, every poll shows, sticks—not least because the Republicans did try to go after Medicaid in their efforts to repeal the Affordable Care Act. In the face of polling showing nearly 80 percent of the public didn’t want Medicaid slashed, Republican Speaker Paul Ryan went after it repeatedly, obsessively, as Ahab did the whale. It requires no imaginative leap to envision Republicans seeking to fill the budget hole they created by reducing Americans’ access to medical care. It requires nothing more than a short-term memory.

It took some time for the Democrats to realize that these three lines of attack—that the tax savings are going to the rich, that the corporations’ bounty is going only to shareholders, that Republicans will use the deficits they created to cut health care, retirement income, and education—were the ones that resonated most widely and deeply with the public. “Initially, Republicans got away with the argument that the cuts would bring jobs back,” says one senior Democratic Hill staffer. “The early reports after the bill passed focused on bonuses: Home Depot gives its workers $1,000 bonuses. Then we saw what corporations were actually doing with their savings: Home Depot admits it’s only for employees who’ve worked there for 20 years. That’s why Democrats have to keep talking about the buybacks, have to keep the drumbeat going.”

“It also took a while for the media to pick up on the threat the cut posed to Medicare and Medicaid,” he continues. “Our attacks on the cuts weren’t fully resonating until we zeroed in on the implications for Medicare and Medicaid and Social Security. Then the media got it. And the public got it.”

The public certainly did. In a Gallup poll from April, 39 percent of Americans approved of the Republican tax cuts, while 52 percent disapproved of them. “I doubt there’s ever been a tax break bill in the whole course of American history that’s been this unpopular,” says Texas Representative Lloyd Doggett, the ranking Democrat on the Tax Policy Subcommittee of Ways and Means.

 

“IT'S EASIER TO BE UNIFIED when you’re on defense, opposing something,” says ATF’s Frank Clemente. “It’s hard when you’re proposing something, on offense.”

Precisely because the Democrats’ attacks on the Republican tax cut appear to be working, the course of least resistance, thus far, has been to stay on the attack rather than propose concrete alternatives. Yet arguing, as the Democrats do, that the cuts endanger education, affordable health care, and retirement security automatically begs the question of what Democrats would do about the cuts if they’re returned to power. Roll them all back? Perhaps only the corporate cuts? Or maybe just some particularly indefensible provisions?

Among some more centrist Democratic politicos and consultants, any talk of countering what all agree is a disastrous Republican tax cut is nonetheless seen as a risky venture. When Pelosi remarked in a meeting of reporters that, of course, the Democrats would seek to roll back some of the cuts, some Democratic staffers hastily put out the word that the party’s real commitment was simply to extend tax cuts to the middle class.

But the cognitive dissonance involved in attacking the cuts as dangerous yet failing to promise to do anything about them is ultimately too great for any but the most petrified of pols. (Who most certainly exist. Asked whether the cuts should be rolled back, one of the few House Democrats who represents a district that Trump carried came up with this masterpiece of nothing: “I think we ought to do what makes sense, and what passed does not make sense.”)

Not every Democrat is so exquisitely noncommittal. Asked the same question on rollbacks, Tim Ryan, the Democrat who represents Youngstown and Akron in the House, and who at times has been touted as a more culturally centrist (or at least, less demonized) alternative to Pelosi to lead the House Dems, replied, “For the top—yeah, absolutely. We need to ask the wealthiest people to pay more to help us rebuild the country and put these communities back into the global economy.” In other words, to get some much-needed funding to places like Youngstown and Akron.

“It’s important to tie the opposition to cuts to what we’d do with the money,” says one House Ways and Means Committee staffer. In late May, Pelosi, Senate Democratic Leader Chuck Schumer, and a number of their House and Senate colleagues did just that. In response to the support for greater education outlays that the public demonstrated in backing the teachers’ strikes, they called for spending $100 billion on raises for teachers and improvements to school infrastructure. “Democrats propose paying for this critical investment,” the accompanying press release stated, “by repurposing the money used to provide tax cuts to the top one percent. Instead of allowing millionaires, billionaires, and massive corporations [to] keep their tax breaks and special-interest loopholes, Democrats would invest that money in teachers and students.” Nothing too specific there on which breaks and loopholes would be closed, but Doggett has noted that rolling back one late insertion in the GOP’s bill, which reduced the tax rate on the highest-income Americans from 39.6 percent to 37 percent, would yield the same amount of funds that Trump’s budget cut from education.

Doggett also authored the first bill that would roll back a portion of the tax cuts—a portion he views as especially indefensible. Though the Republicans touted their bill as enabling corporations to bring jobs they’d offshored back to America, in fact the new tax law sets the rate for profits corporations earn abroad at about half that of the rate for the profits they earn in the United States. Doggett’s bill—the No Tax Breaks for Outsourcing Act—would equalize those rates, as well as compel companies based in the United States that divert their profits to tax-shelter nations such as the Cayman Islands to pay the U.S. tax rate on those profits.

“We hadn’t introduced any bills that make corrections here or there to the Republican tax bill, but this issue is so significant in terms of impact, we thought we needed to get it out there,” Doggett says. “This bill is something our candidates can talk about not just to progressives but to a broader public, including across the Midwest.”

Senate Democrats/Creative Commons

“If I didn’t raise the tax cut at my town halls, I don’t think it would even come up,” says Oregon Senator Jeff Merkley. 

I ask Doggett whether that means his bill will get the unified support of the Democratic caucus. “No,” he replies. “There’ll be some opposition in the caucus; we have our corporate wing, as we saw in the vote on weakening Dodd-Frank. With campaign dollars flowing from the corporate sector, there’s more reticence about raising corporate taxes than there is about raising taxes on individuals. There’ll be more members willing to take on individuals who make more than a million a year than to take on corporations.”

“The multinationals have been so successful at moving their profits across borders they’ve come to think of it as an entitlement,” Doggett adds. “They have a lot of influence in both caucuses.”

Indeed, as ATF’s Clemente points out, when Republicans first outlined their tax cuts last year, congressional Democrats were united in opposing the cuts for the wealthy, but a number were reluctant to oppose the drop in corporate tax rates. “There are 7,000 corporate lobbyists who work on taxes.” Clemente says. “They hold the Democrats back.” In the end, responding in large part to the increasingly militant liberalism of the Democratic base, every member opposed the GOP bill, but that doesn’t mean every member would support revisiting corporate tax rates should the Democrats regain congressional majorities—even if, as with Doggett’s bill, public sentiment would almost surely favor such action.

 

IN LATE MAY, Colorado Representative Jared Polis introduced the second bill to roll back the GOP tax cuts—in this case, all of them. Polis’s Students Over Special Interests Act would restore the tax rates the Republicans cut and redirect the funds to pay off student debt and make colleges more affordable. This idea cuts through the mind-numbing detail of the Tax Act, and proposes, by contrast, a big idea that Americans can immediately grasp—billionaires versus students and graduates hobbled with debt.

Unlike Doggett’s bill, Polis’s hasn’t really been written with an eye to its eventual passage should the Democrats retake Congress. Indeed, even if the Democrats retake Congress, Polis won’t be there, since instead of seeking re-election, he’s running for governor of Colorado. His bill is plainly intended to boost his prospects in his politically purple home state.

And in that, Polis is on to something. For at the state level—in red states as well as purple and blue—many Democrats are running for office this year not just by demanding a greater commitment to funding schools and other necessary services, but to paying for them with higher taxes.

What changed the political calculus for those Democrats were the teachers’ strikes in a string of red states, which not only compelled Republicans to violate their Norquist oaths never to raise taxes, but convinced Democrats that raising taxes was no longer a sure ticket to political oblivion.

The change was particularly notable in West Virginia, home to the strike whose success ignited similar actions in Kentucky, Oklahoma, and Arizona. Democrats had controlled the statehouse there as recently as 2014, but while in power had no interest in raising taxes to help the state’s beleaguered schools. Indeed, earlier in the decade, when Democrat Joe Manchin was governor, they’d cut business taxes, creating a deficit of roughly $350 million.

When the teachers shuttered all the state’s schools, however, with demands for funding not only to make their imperiled health insurance system sound again but also to upgrade the condition of public education—demands that won wide support from the schoolchildren’s parents—they derailed a Republican bill that would have cut taxes on the state’s energy companies. They also called for a severance tax on natural gas to fund their demands.

“We had thousands of members outside the capitol chanting, ‘Tax the Gas!’” says Ryan Frankenberry, a key strike organizer. “In West Virginia—where coal and oil and gas have dominated the state since its creation. This was a game-changer.”

The proposal didn’t come to a vote, as the state’s Republican governor simply declared that he’d change his budget estimates, thereby creating (on paper, anyway) the funds to cover the health insurance fund deficit. But most Democratic legislators supported the teachers’ proposal.

AP Photo/Jacquelyn Martin

When House Speaker Nancy Pelosi remarked that, of course, the Democrats would seek to roll back some of the cuts, some Democratic staffers hastily put out the word that the party’s real commitment was simply to extend tax cuts to the middle class.

Mick Bates, a member of the state assembly who heads the state Democrats’ House Campaign Committee, says: “We will campaign this fall on raising revenues. A little more than half of the state’s $4 billion budget goes to K–12 schools; we view that as an investment we need to increase.” Two revenue sources Bates believes the Democrats will likely back are the gas severance tax and a tax on marijuana. (To general amazement, Bates steered a medical marijuana legalization bill into law last year.) He’s upbeat about the Democrats’ prospects in the November elections, not only because of the high level of parental support for the teachers’ demands and more school spending. He also cites the defeat in this year’s Republican primary of one longtime legislator who opposed tax hikes to increase school funding by a more moderate Republican who supported them—much as the parents of Kansas schoolchildren ousted anti-tax lawmakers in that state’s 2016 Republican primaries to win better funding for their children’s schools.

In contesting for state offices by advocating raising taxes to boost such services as education, the West Virginia Democrats are anything but alone. In Georgia, Democratic gubernatorial nominee Stacey Abrams is calling for rolling back a state tax cut that Republicans enacted earlier this year.

The changing political climate around taxes and education in red and purple states “is part of a larger trend of Democrats coming around to the idea that raising taxes on the wealthy is actually not only a good idea but a popular one,” says one senior Senate staff member. But the forces that have compelled even red-state Republicans to recalibrate their thinking on taxes, Doggett cautions, haven’t trickled up to his Republican colleagues in the Capitol. “The only thing the Republican caucus can agree on here is more tax cuts,” he says. “The Norquist ideal still holds.”

Indeed, Doggett is concerned that the Republicans may try to pass yet another tax cut shortly before the November election—responding to the Democratic criticism that their tax bill reduced corporate taxes permanently but individual taxes only for ten years by making the cut to individual taxes permanent, too. In a speech in late May, Trump promised to do just that.

Doggett fears that if the Republicans do attempt to make that change, “the response of my Democratic colleagues would be mixed. We’d need to emphasize that this would dig us into an even deeper hole, jeopardizing Social Security, Medicare, and education even more. We’d need to say, rather than extend this flawed bill, extending tax cuts to the richest Americans, let’s wait until January. If Democrats take the House, we could draft a bill with progressive provisions, but not extend benefits that go to the very top.”

“Still,” Doggett adds, “if this comes on the eve of the election, it could be a significant challenge for the Democrats.”

The Democrats face a different kind of challenge going into the 2020 election, Clemente points out. With the party abuzz with talk of Medicare for All, affordable college, and bringing the nation’s infrastructure up to (or even close to) 21st-century standards, the Democrats need to develop plausible plans for how to pay for such necessities. “The party base is into these programs; it’s not into taxes,” Clemente says. But progressive taxes will be the sine qua non behind these programs if these programs are to emerge and thrive. He’s encouraged that polls show millennials—the generation most scarred by the Great Recession, employment insecurity, and low wages—are especially supportive of a more progressive tax code. Millennials, he points out, will be the nation’s largest voting bloc ten years hence.

Does that augur an end to the era of Proposition 13, which was enacted 40 years ago this June? Perhaps. A new poll by the Los Angeles Times shows that 54 percent of state voters would support a proposed initiative for the 2020 ballot that would roll back Proposition 13’s tax cuts on businesses.

Would that mean the revolt of the haves will have finally run its course? Not likely. But it could be a sign—as the forces for a more equitable economy come into their own—that it will be a lot more contested.

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