What to Expect From the Upcoming Tax Reform Fight

Although the Trump Administration and Congressional Republicans have finally laid out the overall goals of their tax reform plan, there are very few details of what will actually go into the final bill, if they are even going to stick to their original guidelines, or what real effect their proposals will have. While lowering taxes for the middle class is one of the most prevalent talking points, there is little evidence that the Republicans’ guideline is currently set up to do that, unlike the clearly planned tax cuts for businesses and higher income Americans. However, there is both good news and bad news for Republicans’ inability to coalesce around one plan: the American public isn’t sure what they want in the tax reform plan either. However, the one thing that they are sure about is that tax cuts for the middle class are essential. Republicans have leeway with most of their proposals, as long as the middle class receives tax cuts, which appears to be very much still up in the air.

Our recent national survey[1] of 1,000 adults showed that most of the proposed tax reforms have little support among Americans, with the exception of tax cuts for the middle class. Indeed, two-thirds of Americans (66%) would like tax cuts for the middle class, while less than half as many people want the earned income tax credit doubled (31%) or for the child tax credit to be doubled (30%). Other Republican proposals are even less popular, as less than one-quarter of Americans want a lower corporate tax rate (23%), lower taxes for those making more than $250,000 a year (14%), or for the number of deductions people can take to be reduced (13%). Should Republicans choose to simply appease their base, they have more flexibility in lowering the corporate tax rate (37% of Republicans would like it included), doubling the earned income tax credit (32%) and child tax credit (31%), and even cutting taxes for higher income Americans (21%); however, middle class tax cuts are also seen as a must, as support increases among Republicans to 74%.

However, if Congressional Republicans want to also reach out to Independents and Democrats, they are going to need to bring some new ideas to the table since outside of cutting taxes for the middle class (61% and 65% support among Independents and Democrats respectively), popularity for their other proposals (tax cuts for the rich and lower corporate tax cuts) drops among these two cohorts.

On the other side of the aisle, it may be tempting for Democrats to sit back and watch the Republicans crash and burn since this tax plan is likely to do the opposite of what the public wants; however, it won’t take Republicans much effort to spin it as beneficial to the middle class. Our survey shows that the Republicans have done a very good job of messaging the importance of tax cuts. Regardless of the effects of tax cuts in Kansas, or Democratic messaging, or what demand side (Keynesian) economists say, more Americans believe that lowering taxes on companies and individuals will allow for more spending, which means more jobs and a better economy for everyone than think lowering taxes on companies and high-income Americans will do very little for the economy and likely raise our debt. Despite evidence to the contrary, 46% of Americans think that tax cuts to the upper class and corporations is going to benefit them, while 34% do not believe this to be the case. Even if Republicans do not include middle class tax cuts in their tax reform bill as two-thirds of Americans would like to see them do, Republicans are unlikely to pay much of a price, yet.

The burden for keeping Republicans from electorally benefiting, regardless if they cut middle class taxes or not, falls on the Democrats and it is clear that Democrats need to step up their messaging game. The theory that lower taxes on companies and individuals will benefit everyone is widely accepted, regardless of demographics. The Democrats’ messaging has resonated with other Democrats, Hispanics, and people who are not married; otherwise, Republicans have a strong messaging advantage. Even among their own party, Democratic politicians are losing the messaging game, as 35% of self-identified Democrats think that lowering taxes on companies will allow for more spending while just 20% of Republicans think that lowering companies’ taxes will do very little for the economy. If Democrats are unable to get their own people behind a message that has experts vouching for its validity, it’s unlikely that they are going to be able to convince voters making less than $100,000 who already are less inclined to believe them.

Even though Republicans are not on track to deliver what most Americans want out of tax reform, Democrats either need to better educate the public on the pitfalls of the Republicans’ plan or stop using it as a main attack line. Seven in ten voters who already think that lowering taxes on companies won’t help are already voting for Democrats in 2018, but those who think it will help the economy are split between wanting Democrats in control after 2018 (40%) or wanting Republicans in control (47%). If Democrats cannot successfully convince these voters that the tax cuts to companies and the rich are not in their best interests, they risk losing a wide swath of voters who comprise 37% of their 2018 supporters.

There is a long way to go before Republicans can say they passed any tax reforms, or even just a straight tax cuts. That being said, don’t bet on the Democrats being able to take advantage of the situation either way. Benefits to the Democrats are more likely to come from the Republican coalition melting down than any proactive messaging on the issue. Unless we move away from the typical “tax cuts for the rich” line of argument, we are unlikely to be successful from a messaging standpoint.

[1] 1,000 interviews among adults were conducted from October 6-11, 2017 and were weighted to ensure proportional results. The Bayesian confidence interval for 1,000 interviews is 3.5, which is roughly equivalent to a margin of error of ±3.1 at the 95% confidence level.

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