Short was the White House director of legislative affairs, the key liaison between Trump and Capitol Hill. He saw firsthand how Americans for Prosperity hindered the Obamacare repeal. He said the administration had learned its lesson by the time the tax bill came around—Short would bring aboard third-party groups like AFP early. He met several times with Tim Phillips in the Executive Office Building, next door to the White House.
Short had worked closely with Phillips over the years. They had a warm rapport. During their meetings, Phillips said that AFP had a handful of key goals with the tax plan. One was to remove the BAT. The other was to remove the slew of personal deductions that had been written into the tax code over decades, allowing people to get tax breaks for their children, home offices, and other expenses. These deductions were the closest thing that middle-class families had to a shell company in the Cayman Islands. They were a key way to reduce the tax burden, and many families depended on them to claim tax returns. The tax code needed to be simplified, Phillips said.
Short took Phillips’s concern back to the White House. Trump was willing to abandon the BAT, even though it was in line with his “America First” doctrine, Short recalled. Trump felt the BAT was too complicated to explain. He didn’t feel like he could rally political support for the measure. He was also willing to sign a bill that removed deductions.
Tim Phillips was invited with a handful of other conservative movement leaders to a meeting with Trump in the White House. The tone was friendly. When Trump saw Phillips, he quipped, “You’re the Koch guy, right?” Short recalled. Phillips said that AFP was happy with the tax bill. Trump could count on the AFP foot soldiers to get out and support it. It was understood that the BAT was gone.
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On July 27, Paul Ryan and Kevin Brady released a statement saying that the BAT proposal was dead and would not be included in the Republican tax reform bill. Koch had won the fight over the BAT before the public fight began.
Now, with the BAT off the table, the Koch network deployed the second half of its block-and-tackle strategy. After it had blocked the Trumpian Border Adjustment Tax, the political network would help Congress, and President Trump, tackle any opposition to passing a tax cut bill that conformed more closely to Charles Koch’s vision.
On July 31, AFP released a statement crowing about its achievement: “AFP’s Defeat of the Border Adjustment Tax Clears the Way for Principled Tax Reform.” Other interest groups had fought the bill, led by retailers such as Walmart and Best Buy that relied on imports for their sales. But none of the groups, and none of the companies, had a political network that could rival Charles Koch’s. None had armies of volunteers, or a network of wealthy donors who could fund attack ads.
On August 8, Americans for Prosperity rented out a large event space in the Newseum, on Pennsylvania Avenue in downtown Washington, DC. The group brought its charter buses from small towns throughout Virginia. Volunteers arrived from North Carolina and Ohio. They filed into a conference room and were handed glossy placards demanding that lawmakers “unrig the economy” by passing tax cuts.
Mark Meadows was the keynote speaker. If he was tepid in his opposition to the BAT before, he was fervent about it now.
“There are some who have said: ‘Well, you know, those special interest groups, they want that border adjustment tax,’ ” Meadows said. “Well, I can tell you that Americans for Prosperity were leading the charge, many times, to say: ‘What this is going to be is a new tax on the American people.’ When we talk about revenue neutral, what that means is that we’re going to cut your taxes in one place and we’re going to add them someplace else. There is no benefit from that.”
Meadows encouraged the crowd to get out and fight for the new tax cut plan that was working its way through Congress. He warned them that speed was now of the essence—the bill had to be passed before opposition could build. Meadows, who had led the charge to obstruct Trump’s agenda, said the time for obstruction was over.
“We’ve got a president in the White House who is not going to take any excuse. He’s saying that we’ve got to get this done. We’ve got to deliver. And quite frankly, it’s members in the Senate and the House that have kept him from accomplishing his agenda already!” he said.
Meadows framed the debate over tax reform in populist terms. He rallied the volunteers by assuring them that if they helped pass the tax cut bill, they’d be helping reduce corruption in Washington.
“For far too long, it’s been the well connected or the people that are well paid that actually get the biggest benefit in terms of our tax code,” he said. “That is going to change this year, when we actually start giving you back the money that you earned.”
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The tax bill passed Congress in December, and was signed into law before Christmas. The most significant portion of the bill was an income tax cut for corporations, permanently reducing their tax rate from 35 percent to 21 percent, a cut that amounted to roughly $1 trillion over a decade. The bill also cut the income tax rate for the richest Americans from 39.6 percent to 37 percent.
Without a border adjustment, the tax cut for corporations increased the federal deficit, making it difficult to pass the bill through the Senate. The reasons for this were complicated. The Republicans planned to use a process called “budget reconciliation,” which required only a bare majority vote. This allowed them to avoid a filibuster. But a bill passed through reconciliation could only add so much money to the deficit, and, without the BAT, the current tax cut plan added far too much. To accommodate for this fact, the Republicans came up with a simple maneuver. They made the tax cuts for middle-class families temporary. Those cuts would begin to expire in 2022 and be fully repealed by 2027, leaving many families with a tax increase. The middle class had been given a smaller tax cut, for a few years, in order to make the math work.
In the end, the bill looked very much like the typical tax bill that Mark Meadows described at the Americans for Prosperity event in August. It primarily benefited the highest earners and the best connected. The richest 20 percent of Americans got 65.3 percent of the value of the tax cuts. Middle-income Americans got zero benefit from the tax cuts after their temporary cuts expired.
Starting in 2027, the biggest tax breaks under the plan would go to the richest 5 percent of Americans, while taxes would slightly increase for the poorest Americans, according to an analysis of the cuts by the Tax Policy Center. Using a number of assumptions about the profit margins at Koch Industries, a liberal policy group called Americans for Tax Fairness estimated that the tax cuts would save David and Charles Koch more than $1 billion annually in taxes.
By the summer of 2017, Koch’s block-and-tackle strategy was paying dividends. Koch had proved its power in the Obamacare fight, and had reshaped the tax reform legislation from a Trumpian bill to a Koch bill. With these victories in hand, the Koch network could turn to a more helpful role. As it turned out, the Trump administration and the Koch network shared one important goal. Both groups wanted to ensure that greenhouse gases were not regulated in any way, and that the fossil fuel industry would retain its predominant role in America’s energy system. Koch Industries had a knack for positioning itself to exploit good luck, and Donald Trump’s election proved extraordinarily lucky in this regard. Trump waged a war on climate change regulation across the federal government, from the US Department of Agriculture to NASA and the Pentagon. Koch Industries was on hand to assist the effort.