Will Obama's immigration action kill tax reform? No.

A popular Washington narrative is that President Obama will kill prospects for tax reform in 2015 if he grants legal status to undocumented immigrants. But even if Obama does nothing on this issue, the political headwinds against a tax code rewrite were already too strong. 

Pablo Martinez Monsivais/AP
President Barack Obama speaks in the Roosevelt Room of the White House in Washington, Tuesday, Nov. 18, 2014. Gleckman argues that a possible executive order on immigration will have no bearing on future tax reform.

The latest narrative making the rounds in Washington is that President Obama will kill prospects for tax reform in 2015 if he grants legal status to undocumented immigrants though an executive order. House Speaker John Boehner (R-OH) and others claim that this step will so poison the well of trust between Democrats and Republicans that a tax code rewrite will be impossible.

Query: Can you poison a well that already has run dry?

The Washington Post’s Lori Montgomery does a nice job laying out the arguments. But it helps to understand the backstory. Tax reform, even business tax reform, was never going to happen in 2015. But pols feel the need to respond to those voters who are fed up with Washington’s inaction so they pretend they are ready to move on issues like a tax code rewrite. Then, they need to blame their opponents when nothing happens. For the GOP, Obama’s immigration initiative is a convenient scapegoat.

It is certainly true that Obama’s executive action won’t promote bipartisanship. But even if the president does nothing on this issue, the political headwinds against a tax code rewrite were already too strong, especially after this month’s elections.

After their electoral drubbing, Democrats learned they must reenergize their base– white 20- and 30-something college grads, African-Americans, and Hispanics—many of whom did not bother to vote this year. To do that, they need to build a strong narrative around a few big ideas.

Climate change, economic security, and the aforesaid immigration seem to be high on Obama’s Big Idea list. Perhaps a well-designed business tax reform could boost jobs and growth, but the argument is too theoretical and will never ring the chimes of the Democratic base.

For his part, Obama does bear much of the blame for stalling tax reform. But that’s because of his long-standing disinterest in the issue, not because of what he may do on immigration. Obama and his aides dutifully talk about tax reform, but I can’t help but think they do so only because they are certain Congress will not act. It is their version of the GOP’s poisoned well argument—we wanted to, but they wouldn’t let us. In truth, Obama has little interest in using what remains of his political capital to fix business taxes.

For Republicans, the story is more complicated. While they won control of the Senate and picked up about a dozen seats in the House, the congressional GOP is deeply divided over what to do next.

Do they take the tea party route and go to war with Obama over spending, demanding deep cuts in domestic programs? Do they use the budget (and perhaps even the debt limit) as a cudgel to try to force him to back down on his top priorities including the Affordable Care Act, immigration, and climate change?

Or do they back the party’s establishment wing? Led by Mitch McConnell, who is about to become Senate Majority Leader, it prefers to prove to voters that Republicans can govern by winning congressional votes on relatively modest bills and forcing Obama to either accept them or veto them.

I’m betting on McConnell but this fundamental disagreement will take months to sort out and will sap most of the party’s energy well through winter and spring.

Like the Democratic base, many GOP activists are just not going to get excited about business tax reform, especially if it doesn’t cut taxes. Business executives, many of whom bankrolled GOP candidates, are more interested, of course. But beyond rate cuts, they cannot agree on what a rewrite would look like.

We are left, then, with the reality that tax reform is almost certainly off the table until after the 2016 presidential election. The issue is not going away and remains a critical national priority. But, for now, the question is which party does a better job of blaming the other side for its demise.

The post Will Obama’s Executive Action on Immigration Kill Tax Reform? Hint: You Can’t Kill Something That’s Already Dead appeared first on TaxVox.

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