The push for tax reform has entered its third week in Washington, that dreaded time period in which policy proposals can be buried by a shift in the news cycle or a fickle Congress. Any progress in our deeply-divided capital is difficult these days, but comprehensive tax reform is a special kind of challenge. Small business owners across the country are (or should be) paying close attention to the debate. They should also take optimistic assessments of passage with a grain of salt. Any legislative success will require a communications strategy more nuanced and consistent than what has recently been on display in Washington.
The last successful effort to pass comprehensive tax reform came in 1986 with a bipartisan push to close tax loopholes and broaden the base between President Reagan and Democratic House Speaker Tip O'Neill. As with any bipartisan legislation, it was based on compromise -- in that case, Democrats agreed to raise the retirement age and Republicans had to agree to increase tax revenues by one percent of GDP.
President Trump has made it clear that he is not really interested in pursuing a similarly bipartisan path, making his journey to a legislative majority far more treacherous. The failed attempt at repealing the Affordable Care Act exposed deep divisions between Speaker Ryan's allies in the House and its far-right Freedom Caucus. In the Senate, Majority Leader McConnell could only afford two defections from his caucus members. And outside Washington, support is anything but guaranteed -- fewer than a third of small businesses expect changes in tax policy to give their businesses a boost, according to the latest CNBC Small Business Survey. While the small business community isn't a voting bloc, it's an organized and vocal constituency that can make or break tax reform efforts on Capitol Hill.
Effective advocacy requires vocal and sustained support from in-district leaders who enjoy influence with members of Congress and whose comments provide regular fodder for media. The Trump Administration stumbled out of the gate in its first week of tax reform, positioning Mr. Kip Tom as the face of family farms who need estate tax relief. But Tom is a "mega farmer" operating tens of thousands of acres of farmland in Indiana -- and Brazil. Not exactly a relatable voice for Middle America.
Headlines like this one: "Trump's 'small business' tax cut is actually for rich people like Trump," - don't help. While the President's personal wealth has not proven much of a liability so far in his term, policy details that could directly benefit his pocketbook at the expense of entrepreneurs may weaken support where he needs it most. Senator Rand Paul has already criticized the plan as a "tax increase on 30 percent of middle class Americans," which flies in the face of the populist wave that swept Trump into office. Contrast this with Forbes' estimate that Trump family savings could be up to $1.4 billion, and supporters of tax reform quickly start to lose control of their narrative.
Why is tax reform so hard to build support for? While a tax code rewrite, as a concept. is wildly popular and there is widespread recognition that the current system is overly complicated and burdensome, few businesses are willing to give up their carve-outs in exchange for a simpler code. As the Brookings Institute has noted, tax reform "creates a set of winners and a set of losers, and those losing out tend to be more vocal in their opposition to the reforms than the winners are in their support."
Together, the early struggles to line up effective validators, the quandary of resistance from small business owners, and an inability to stick to a compelling narrative mean comprehensive tax reform may be out of reach for Congressional Republicans in the near term. Something may get passed, but without a communications strategy that empowers supporters in Washington with political air-cover from outside the capital, it's unlikely to be the once-in-a-generation rewrite that President Trump has promised.