While Goldman Sachs analysts believe there is “a 65% probability that tax legislation will be enacted by 2018,” they nevertheless see major hurdles for President Trump’s tax reform push.
The framework released by Trump and ‘Big Six’ tax negotiators on Wednesday proposed the “largest tax cuts in our country’s history.” On Friday, the Senate Budget Committee unveiled a budget blueprint that would allow for $1.5 trillion in tax cuts over 10 years.
Goldman’s first potential issue involved that $1.5 trillion number, which was called “a ceiling as opposed to a floor” by Bill Hoagland, senior vice president at the Bipartisan Policy Center and a longtime Senate budget staffer.
“First, the revenue target has not yet been finalized, and it is becoming increasingly clear that the Senate’s $1.5 trillion tax cut instruction is at the high end of the potential range of outcomes,” Goldman wrote in a note to clients. “It is possible that tax legislation that reduces revenues that much might still face opposition from some Republican centrists.”
Furthermore, despite the preliminary consensus on a framework, “there are major details that remain unknown, particularly which tax preferences would be curbed to help offset the cost of the tax cuts,” Goldman stated.
Some of the details, or lack thereof, are already contentious. On Monday, Republican Senator Rand Paul criticized the nine-page plan released last week.
“This is a GOP tax plan? Possibly 30% of middle class gets a tax hike? I hope the final details are better than this,” Paul tweeted with a link to an analysis by the Urban-Brookings Tax Policy Center.
“[S]ome of the tax increases that have been proposed to offset the cost are likely to be very difficult to achieve, such as repeal of the state and local tax deduction,” Goldman analysts said.
The Trump administration has floated the idea of removing a deduction for state and local taxes, known as the SALT deduction, that costs Washington roughly $100 billion per year in foregone revenue. However, that deduction will be very difficult to kill given the politics of ending a popular tax break.
After Trump economic advisor Gary Cohn said that the elimination of the SALT deduction was negotiable, Republican Senator Bob Corker accused the administration of “softness” and questioned the GOP’s “intestinal fortitude” on tax reform.
Despite the early complaints, the initiative is making progress. This week the Senate Budget Committee will likely vote on a tentative budget agreement, and the House is also looking at passing a budget resolution.
However, given the complexity of tax policy, managing the process to the end will be a challenge for a Trump administration that failed spectacularly on health care.
“This is going to make health care look like a simple thing to do,” Corker told Bloomberg.