Republicans Can Have the Tax Cuts or the Spending, but Not Both

By Noah Rothman

Monday, June 03, 2024

 

As the estimable presidential historian Tevi Troy wrote recently in these pages, it’s a good thing when political parties inform voters about what they intend to do with the power they seek at the ballot box before an election.

 

Troy wrote in support of the promulgation of a Republican platform in 2024 — something the party has struggled with amid its makeover into a vehicle to advance whatever Donald Trump’s personal priorities happen to be at any given moment. But there’s no time like the present. Perhaps with that dictum in mind, House Speaker Mike Johnson recently sat down with a Semafor reporter to discuss some of his priorities for the next Congress and, he hopes, the next presidency.

 

Johnson plans to go big. Rather than the “single-subject approach to reconciliation” the GOP took at the outset of Trump’s presidency, Johnson wants “to have a much larger scope, [with] multiple issues to address in addition to the expiration of the Tax Cuts and Jobs Act.” The tax cuts Trump signed into law in 2017 are set to expire next year. It is unclear today if there is an appetite among Republicans for extending them in their present form, to say nothing of the legislative hurdles in the way of that objective. The ideologically conservative Republican conference that passed the TCJA is long gone. It has been replaced in the intervening years by a GOP that is much more comfortable with economic planning and confiscatory tax policies designed to fund social-engineering projects. Johnson’s vagueness is a wise reflection of his — and everyone else’s — perplexity over where the GOP stands at present on the virtues of a pro-growth tax structure.

 

The problems associated with the Republican Party’s uncertain identity are compounded by the certainty of the arithmetic. As the reliable analysts at the Committee for a Responsible Budget explained, “policymakers will now face a potential $4 trillion cost if they choose to extend large parts of the Tax Cuts & Jobs Act – a cost that was believed to be significantly less than $3 trillion after TCJA was first enacted.” The report concluded, “Adding these tax cuts to the national credit card will dramatically worsen an already dismal fiscal picture, putting the debt on a rapid upward trajectory.” Not great news.

 

And yet, a dramatic rollback of the 2017 tax-reform bill would present an equally gloomy set of circumstances when the added tax burden on American families and firms gives way to lower growth and, therefore, reduced tax revenues. The answer to that conundrum should be to pare back the new spending to which the federal government committed itself under Joe Biden — both the hard targets and the low-hanging fruit. But there is no plan for that yet.

 

“Johnson did not commit to fully repealing the Inflation Reduction Act, the climate and tax bill that passed through reconciliation under President Biden, saying ‘the details are being determined’ on their approach,” according to the Semafor report. In addition, Johnson confessed that he did not “think there was any coordinated effort” afoot to repeal and replace the Affordable Care Act (indeed, why would there be?).

 

If Republicans were the beneficiaries of a wave election which delivered to them the White House and working majorities in both chambers of Congress, no plan would be necessary. But that seems unlikely. In anticipation of another Congress typified by modest, fractious majorities, Johnson is smart to keep his powder dry. But that does not mean he should not be promoting the notion that current spending levels, with interest rates where they are, put the United States on an unsustainable trajectory. While coyness on the subject advances Johnson’s near-term political objectives, refusing to level with the American people does them no favors.

 

Along with their newfound domestic-spending priorities, Republicans in the Senate are endorsing a new defense-spending posture in response to the rapidly deteriorating international threat environment.

 

Last week, Senator Roger Wicker unveiled a plan to once again develop, train, arm, and deploy a U.S. military capable of fighting a two-front war against America’s great-power competitors — a construct the Pentagon abandoned under Barack Obama. As John Noonan explained in his analysis of the Wicker plan, “America is in a 1930s moment,” and it is woefully unprepared for the 21st century equivalent of the 1940s. Wicker’s proposal to boost defense spending to 5 percent of GDP in the coming fiscal years (as well as some much-needed reforms to the Pentagon’s procurement processes and its political culture) is a prudent answer to the challenges presented by revisionist regimes like those in power in China and Russia.

 

Again, the chances that Wicker’s approach gains traction with the Senate Republican conference depend greatly on the identity the Republican Party assumes after the 2024 elections. The senator’s proposal has the support of outgoing Senate Republican leader Mitch McConnell and, one would assume, the majority of the conference that still largely defers to McConnell’s guidance. But there is a restive faction within the Senate GOP that prefers butter to guns, and American resources are presently stretched in unfamiliar ways. Choices will have to be made.

 

There are other Republicans within the conference who seem to regard the United States as a spent force — in the estimation of America’s youngest generation of adults, “A dying empire led by bad people.” The politics of a crash program to revitalize America’s blue-water navy and its domestic defense-industrial base will be complicated by the rise of nationalist elements within the Republican Party who resent America’s obligations to its frontline allies.

 

For those elements, the conventional fiscal wisdom aligns with the progressive outlook. To hear them tell it, America’s unsustainable entitlement programs can keep chugging along until the point of insolvency, the “profit motives of the health-care industry” are the real enemy (and the U.S. should adopt the Swedish “socialized” model instead), and America’s national-security priorities are a smokescreen behind which the nation’s defense contractors line their own pockets. Their spending priorities differ from the Left’s in kind rather than scope. There is little agreement between these two GOP factions when it comes to fiscal policy save for the fact that something called the “Trump tax cuts” cannot be allowed to sunset — if for no other reason than that their namesake must be spared an embarrassing loss.

 

That is an irreconcilable conundrum. Republicans can have the spending, or they can have the pro-growth tax regime, but they cannot have both. At least, not for very long.