Trump’s Democratic tax dilemma

President Trump and GOP leaders in Congress could face a challenge in winning support from Senate Democrats for a tax cut package this fall.

On paper, taxes looks like the kind of issue that could be perfect for dividing and conquering Democrats — who are a little more than a year away from an election in which they will be defending three times as many Senate seats as the GOP, many of them in red states.

Tax cuts are historically popular, and Democrats backed former President George W. Bush’s tax-cut package in 2001.

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“History tells us that tax legislation is more difficult in terms of holding Democrats together,” said former Sen. Kent Conrad (D-N.D.), one of 12 Senate Democrats who backed the 2001 cuts. Sen. Dianne Feinstein (D-Calif.) is the last of the 12 still in the Senate.

“If you go back to the Reagan era and the Bush era, both of those would tell you that tax cuts are always very appealing to constituents,” he said. “Almost everyone is annoyed paying taxes. I don’t know anyone who celebrates April 15, so it’s always appealing to tell people you’re going to cut their taxes.”

Senate Democratic Leader Charles Schumer (N.Y.) was able to unify his membership against ObamaCare repeal, but the Republican bills were deeply unpopular and would have eliminated health insurance for millions. The tax-cut packages could be tougher to demonize.

Yet there are many other reasons to think Trump will face serious obstacles on tax reform, and that Democratic unity is far from a pipe dream.

Trump’s tax push will take place in an even more politically polarized climate than the Bush tax cuts.

Bush’s approval rating when Congress passed his first tax package was substantially higher than Trump’s currently. Fifty-six percent of the public approved of Bush’s job performance in May of 2001, while only 36 percent approve of Trump now, according to Gallup.

GOP threats to use special fast-track rules to prevent Democrats from filibustering the tax bills also threaten the prospect of minority support.

This turned away Democrats during the healthcare fight and threaten to poison the well on taxes as well.

“Reconciliation is just a tool to jam through partisan short-term tax cuts that would result in economic uncertainty and instability and significantly increase our budget deficit,” 45 Democratic senators warned in a letter to Trump and Senate Majority Leader Mitch McConnell (R-Ky.) earlier this month.  

And while the administration and Republicans have begun reaching out to Democrats, there are few signs of significant progress so far.

“If Republicans play their cards right, I think there’s a decent chance they can get a handful of Democrats to vote with them, but based on what I’ve seen so far over the year, I’m not convinced it’s going to happen,” said Jim Manley, a former longtime Senate Democratic leadership aide.

Treasury Secretary Steven Mnuchin and other senior administration officials believe that Democrats running for reelection next year in states that Trump won by big margins will have a strong incentive to cut taxes.

“I clearly see the opportunity for bipartisan support and believe that some Democrats will want to support the tax plan moving forward,” said a Trump administration official.

 Administration officials have focused their outreach on a group of centrist Democrats in the House, the chamber where GOP leaders will first move tax legislation, in a bid to build early momentum.

On the Senate side, Mnuchin and National Economic Council Director Gary Cohn met in May with Republican and Democratic members of the Finance Committee.

In addition, Sen. Orrin Hatch (R-Utah), the chairman of the Finance panel, has held one-on-one meetings with Democratic colleagues since the election to discuss the possibility of a bipartisan tax package.

Democrats have suggested they are disappointed with the level of outreach so far.

Sen. Ron Wyden (Ore.), the senior Democrat on the Finance Committee, has described the GOP outreach on tax reform as perfunctory.  He called the May meeting with Mnuchin and Cohn “a glorified dog-and-pony show.”

Trump allies are pointing to past statements by vulnerable Democratic incumbents calling for tax reform.

Sen. Joe Manchin (D-W.Va.), who is up for reelection in a state Trump won by more than 40 points, said in 2012 that he had “long advocated for meaningful tax reform that creates fairness in our system, lowers tax rates for everyone while closing the loopholes, exemptions and credits that make our system unfair now.”

Sen. Joe Donnelly (D-Ind.), who has a difficult race in a state Trump carried by nearly 20 points, said in 2013 that it was “critical for both parties to work together to find common sense ways to significantly reduce spending, close unnecessary tax loopholes and better balance the budget.”

Sen. Heidi Heitkamp (D-N.D.), who also faces reelection in a heavily pro-Trump state, earlier this year expressed support for tax reform that also works for “families trying to put food on the table.”

Republican aides emphasize that all three centrist declined to sign a letter circulated by Schumer last week that laid out the Democratic leadership’s demands for tax reform, but a Senate Democratic aide said that doesn’t mean they will vote for the GOP plan.

“Democrats actually do want to work with Republicans on tax reform, but if Republicans take a partisan route and go against the three principles Democrats outlined, that would be something that unites the caucus and the American people will be on our side.”

In their letter to Trump, McConnell and Hatch last week, Senate Democrat signatories vowed to oppose legislation that cuts taxes for the top 1 percent, that is debated under special budgetary rules that lower the bar for passage from 60 votes to 50, or that increases the deficit.

Schumer is signaling Democrats will argue a GOP tax package would shift wealth from the middle class to the rich.

While Democrats backed tax cuts in 2001 that came under the same argument, he thinks it will be different this time.

“It’s a different world than it was 10 or 15 years ago. The idea that people will support huge tax cuts for the rich when they’re given a crumb won’t work anymore,” he told CNN this week.

The nation had a much brighter fiscal future in 2001, when the Congressional Budget Office projected a $281 billion surplus for that fiscal year and $5.6 trillion in accumulated surpluses from 2002 to 2011, which put the nation on track to pay down its debt.

Now the picture is bleaker. In January, the CBO projected a $559 billion deficit for fiscal year 2017 and estimated that public debt will rise to 25 trillion or 89 percent of GDP by 2027.