A Republican senator finally admitted what's needed to fix the tax bill -- and Trump won't like it

Susan collinsAlex Wong/Getty ImagesU.S. Sen. Susan Collins
  • Sen. Susan Collins is proposing to shrink GOP tax cuts for the rich and for corporations.
  • She would offer larger tax breaks to middle-income families.
  • Tax cuts are limited to a $US1.5 trillion deficit increase over 10 years; any new tax cuts in the bill have to be offset with tax increases to hit that target.

A key fact about tax reform is that it has to fit inside a box.

Republicans in Congress passed a budget resolution that says the tax bill can’t grow the deficit by more than $US1.5 trillion over a decade. This isn’t just a goal — it’s legally binding. The legislative process they’re using to pass the bill obligates them to hit the mark they set for themselves. It also bars them from growing the deficit at all after that first decade.

The bill recently proposed by Senate Republicans just barely meets the first specification and doesn’t meet the second. And various senators are proposing changes to the bill that would make it even harder to fit inside the box  — or that would impose a new, tighter box.

It’s easy to say you want a bigger tax cut for some group, or that you don’t want to impose a tax increase or some group, or that you want to add less than $US1.5 trillion to the deficit. Republican senators are saying all three of these things.

The hard part is explaining how you’ll do that while still fitting the plan inside the box.

One Republican senator  — Susan Collins of Maine  — is admitting the existence of the box and saying what she’d do to fit the bill inside it.

President Donald Trump isn’t going to like her prescription.

Collins wants to cut taxes less on corporations and rich people so middle-income families can get a tax cut

While many of her colleagues are floating ways to make the tax cut bigger, Collins offered three ideas to reporters on Monday about how to make it smaller, in order to make room for it to get bigger in other areas.

The main political and substantive problem with the Republican tax cut is most of its benefits are reserved for very wealthy people or for businesses, which are mostly owned by very wealthy people. And because the tax cut is limited to a fixed size, if you want to give more tax relief to middle-income families, you have to give less to very wealthy people and to businesses.

This should be obvious. But I believe Collins is the first Republican senator to have said this very obvious thing out loud in clear terms.

Alan Rappeport of The New York Times and Joseph Lawler of the Washington Examiner tweeted what they heard from Collins at the Capitol on Monday:

That is: Don’t cut corporate tax rates so much, don’t raise the estate tax exemption so much, and don’t cut the top individual tax rate so much (or perhaps don’t cut it at all, since the existing Senate proposal only cuts it by one point).

Then she floated some ideas about what to do with the space these changes would free up within the box.

Lawler reported that she’d like to preserve at least a portion of the state and local tax deduction. Keeping part of the deduction would tend to mostly benefit middle- and upper-middle income taxpayers who would like to keep deducting their property taxes. If the deduction were preserved with no cap, that would also bring big benefits to the rich, who tend to pay the most state income taxes.

The other idea she mentioned to Lawler is a refundable child tax credit. “Refundable” means you can get the credit even it causes your tax bill to be negative; this provides a benefit to lower-income families who don’t make enough to owe income tax, but who may still struggle financially to raise children.

Will other Republican senators face the hard maths like Collins has?

Republican Sens. Marco Rubio of Florida and Mike Lee of Utah have proposed to double the child tax credit and make the expanded credit deductible against payroll taxes. (The existing child credit, of $US1,000 per child, is already fully refundable.) Deductibility against payroll taxes isn’t the same as full refundability, but it would extend the benefit of the larger child credit to a lot of working poor families.

They have been really pushing this idea, including with an op-ed by Rubio in The New York Times. But they haven’t really acknowledged the problem of the box. They haven’t said how they’d pay for their expensive proposal.

Rubio and Lee have long been reluctant to acknowledge the tradeoffs involved in tax reform. I wrote in 2015 about Rubio and Lee’s “puppies and rainbows” tax plan, which sought to resolve the split between expanded child-credit advocates and supply-side corporate tax cut advocates by giving everyone everything they wanted, at the cost of trillions of dollars.

All those puppies and rainbows definitely aren’t going to fit in the tax box.

Collins has acknowledged the existence and capacity of the box. Rubio will have to do the same if he hopes to get his much-expanded child credit into law.

Trump isn’t likely to react well if senators start telling him he can’t have the 20% corporate income tax rate he seems so wedded to. But if senators are serious about making the Republican reform more family-friendly, they’re going to have to break it to him sooner or later.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.