Tax Pledge Zombies Roam Capitol Hill

You’ve probably heard about the Limit, Save, Grow Act of 2023 (LSG, H.R. 2811), which narrowly passed the House of Representatives last month. It features prominently in the ongoing debate over the federal debt ceiling. It’s the GOP’s wish list of spending cuts, totaling $4.8 trillion over the 10-year budget window, according to the Congressional Budget Office.

Republicans say the belt-tightening is necessary to get a grip on our federal spending, which escalated during the COVID-19 pandemic. Democrats respond that LSG will adversely affect social programs and harm vulnerable American families. They call the proposed work requirements for some Medicaid recipients harsh. If Johnny doesn’t hustle himself a job, then Johnny doesn’t get his insulin. Ouch.

I wasn’t surprised that House Republicans took the opportunity to reverse some key provisions of last year’s Inflation Reduction Act (IRA, P.L. 117-169), which passed under reconciliation without a Republican vote. It’s predictable that one political party will chip away at the other side’s legislative accomplishments the minute it gets the chance.

For their part, Dems are still talking about ways to unwind select pieces of the Tax Cuts and Jobs Act, which passed through reconciliation when the Republicans held power in 2017. You get the point.

You can’t help but notice that the debt reductions contained in the LSG package aren’t limited to the spending side. The bill would roll back some tax breaks that Democrats favor, specifically the clean energy tax credits that were expanded or created under the IRA. Some of those tax credits relate to the purchase of electric vehicles; others relate to the installation of solar panels that lessen demands on local energy grids. The IRA combined these eco-friendly tax cuts with spending provisions for fighting climate change.

House Speaker Kevin McCarthy, R-Calif., wants to reverse the environmental spending as well as the tax cuts. Each step would help reduce the national debt. The CBO scorecard estimates the combined line item at $540 billion over 10 years. (“CBO Scores the Limit, Save, Grow Act,” Committee for a Responsible Federal Budget, April 25, 2023.)

Make no mistake: The repeal of a tax break (even one created by the opposing party) qualifies as a tax increase. Normally, the GOP is averse to tax hikes. It self-identifies as the party of tax cutters, which has proven an effective form of branding.

Over the years, many Republican elected officials have gone so far as to sign a pledge that obliges them to never raise taxes. That’s no tax hike ever — full stop. Zero exceptions and zero tolerance for those who dare to violate the pledge.

If GOP lawmakers want to amend the U.S. tax code to eliminate some clean energy tax breaks, so be it. That’s their prerogative. But how does that not constitute a breach of their pledge?

I’ll concede that I never liked the pledge in the first place. It always sounded like political theater. It claims to be about shrinking the size of government — “starving the beast” — despite the abundant evidence that revenue is not an effective restraint on spending. Besides, if Republicans genuinely sought a smaller government, they would have embraced an anti-spending pledge, but we’re still waiting to see that.

Is the pledge now dead . . . expired . . . placed on indefinite suspension?

It’s hard to say. We’ve faced this issue before, about five years ago when the TCJA was signed into law. One of its features was the GOP’s decision to cap the itemized deduction for state and local tax payments — known as the SALT cap. This had the predictable consequence of nudging millions of taxpayers into taking the standard deduction.

My intent is not to rehash the relative merits of the SALT cap. (Yes, the increased use of the standard deduction makes the tax code marginally more progressive than it would be otherwise because itemized deductions disproportionally benefit high-income taxpayers.) The point here is to emphasize that the SALT cap was an unambiguous tax increase — one designed and implemented by Republican lawmakers, many of whom had signed the pledge.

What explains the GOP’s emerging thirst for a specific kind of tax hike? It’s all a matter of who’s being targeted. The nuance behind the SALT cap was that the tax increase was predominantly felt by the residents of high-tax states. Think of Massachusetts, New York, and California (blue states) as opposed to places like Texas (red states).

We witnessed how the tax increase was portrayed as not violating the pledge, so long as it mostly hurt people whose politics you don’t agree with. That sounds less like an affirmation of enlightened fiscal policy and more like an expression of crass political impulses.

Today, in the context of LSG, we observe the same tendency for doublespeak. We hear that the Dems’ environmental tax credits should be designated as a form of spending and that their repeal at the hands of House Republicans becomes acceptable turf for signatories of the pledge. That’s pretense, of course, and everybody knows it.

It pretends that an overt tax hike doesn’t count as one, so long as it represents a setback for Democrats and their environmental agenda. Never mind that Sen. Joe Manchin III, D-W.Va., was the lead architect of the IRA and he’s hardly a tree-hugger.

The takeaway is clear: It’s perfectly acceptable behavior for Republicans to increase specific taxes on specific occasions, as long as it falls under the banner of “owning the Libs.” That’s fine; that’s politics. Just know that when you cherry-pick when the pledge applies, it sheds any credibility. Maybe it never had much, anyway.