The Tax Cuts and Jobs Act: Corruption by Another Name? Or Just Ordinary Law-Making?

Last December, the U.S. Congress passed, and President Trump signed, the Tax Cuts and Jobs Act. The debate over this law—characterized as the most “consequential tax legislation in three decades”—and the reaction to its passage was polarized and acrimonious. This is usually the case with tax debates, perhaps especially in the U.S. What was more notable and less typical, though, was the extent to which critics of the Act used the language of corruption to characterize both the Act’s substance and the process through which it was passed. (See here, here, here, and here). For example:

  • At several stages of the process, the votes of key Republican Senators seem to have been secured (some might say “purchased”) with special provisions. In fact, Texas Senator John Cornyn, the majority whip, openly admitted that provisions designed to appeal to individual Republican Senators were included in the final bill in an effort to “cobble together the votes we needed to get this bill passed.” That by itself may not be so unusual, even though many would find it distasteful. But in some cases, the special provisions were not only ones that these Senators favored on ideological grounds, or that would benefit their constituents (and hence the Senators’ re-election hopes); these special provisions also provided substantial personal financial benefits to the holdout Senators. For example, Wisconsin senator Ron Johnson was the first Republican to oppose the bill, on the basis that it would double the gap between corporate tax rates and the rates applicable to individuals receiving income from “pass-through entities”. Ultimately, the bill was amended to accommodate Senator Johnson’s concern by incorporating a 20% tax deduction for such entities. As it happens, Senator Johnson himself has millions of dollars invested in four such entities. Or consider Tennessee Senator Bob Corker, a critic of early versions of the bill who had asserted that he would not approve of adding even “one penny” to the “rapidly growing national debt.” Yet Corker ended up voting for a revised version of the bill that would add over $1 trillion to the deficit. What accounts for the change of heart? Critics point to the fact that the revised bill also included a new tax break that would increase Senator Corker’s personal income by up to $1.2 million every year (dubbed the #CorkerKickback on Twitter). Senator Corker claimed ignorance of how the bill would personally benefit him, though the fact that he reportedly earned a total of more than $8 million of income from the entities that were granted the tax break make this ignorance highly unlikely.
  • And then there’s President Trump. The Tax Cuts and Jobs Act could reduce President Trump’s personal tax bill by tens of millions of dollars. President Trump reportedly earned between $41 million and $68 million of income from 25 pass-through entities (which were granted the new tax break which also benefited Corker). He has not divested, in any meaningful way, from his investments. He has also refused to release his taxes on the pretext that he cannot do so as he is under audit, even though no such rule exists. The passage of a tax bill that confers such enormous benefits on the President seems to many like a form of “legalized corruption.”
  • In addition, Republican Party leaders admitted that passing the Tax Cuts and Jobs Act was necessary to ensure that the party continued to receive funding from its donors, who stood to gain millions of dollars in tax breaks—another quid pro quo of sorts. Indeed, the Republican Party has been unabashedly open about this, with Senator Lindsay Graham stating that if the party failed to push the tax bill through, “financial contributions will stop,” and Congressman Chris Collins justifying his support for the unpopular bill on the grounds that his “donors [were] basically saying, ‘Get this done or don’t ever call me again’.” That may not meet the legal definition of corruption in the United States, but to many voters and commentators it certainly seems corrupt.

Is “corruption” the right way to characterize the unsavory politics of the tax bill?

Certainly, much of the conduct just described seems like vote buying, kickbacks, and the exploitation of public power for private gain. However, it would also be possible to interpret this as the usual business of politics and the representation of the interests of constituencies (which may sometimes include the legislators themselves) in a democratic process. If a legislator from an underprivileged community supported a bill which benefitted her community, we would not typically think of such support as corruption, even if the politician was among the beneficiaries. Legislation almost always stands to benefit somebody. And the Republican tax plan is, at least in broad strokes, consistent with core aspects of the Republican Party’s longstanding policy agenda. So, just because a representative votes for a bill from which he or she realizes a personal benefit doesn’t necessarily mean the vote was corrupt. At the same time, corruption may indeed sometimes be the right way to understand what’s going on – at least in a rhetorical sense, even if not in the sense that it satisfies the requisite legal standard.

The U.S. Congress does already have some rules or principles on this issue. The House Ethics Committee’s advice seems to be that a Member should recuse from a legislative decision only if the Member benefits in a “direct and distinct manner, rather than merely as a member of a class.” But that’s not much of a limitation, since virtually every law that benefits the legislators themselves does so because it benefits a broader class to which the legislators belong.

Of course, within the democratic process there are “inducements” which we would deem to be proper. Promising a constituent an attractive policy would not typically be viewed as corrupt, though buying a constituent’s vote with cash would be. Should we erase this line when evaluating intra-legislative dealings between politicians? The mandate of a politician derives from the people and thus is power held in trust, to be exercised in the public, not private, interest. Unlike a constituent, who can legitimately demand of a politician, “What’s in it for me?”, a legislator cannot make any such legitimate demand on other legislators. Legislators are supposed to put their personal interests on the back-burner and act in the national interest, and in the best interest of their constituents. So, if Senators Johnson and Corker voted for the bill only to benefit themselves, or if the Republicans pushed the bill through just to receive donor-funding required to perpetuate their tenure in the White House and Congress, this would be nothing more than corruption by another name.

This is not just an issue for American democracy but is a challenge for every representative democracy in the world. Going forward, it is important for both lawmakers and anticorruption activists to think more seriously about whether tighter legal or ethical rules for legislators are possible and desirable. One possible measure may be requiring politicians to divest from all interests that they have in corporations after taking office. Perhaps, disclosure of interests prior to voting for a bill would suffice. There are other possibilities as well. While coming up with effective solutions is challenging, it is clear that the system is in urgent need of re-imagination and reform, in a manner that balances the freedom of legislators with the greater needs of any democratic system of government.

4 thoughts on “The Tax Cuts and Jobs Act: Corruption by Another Name? Or Just Ordinary Law-Making?

  1. Pingback: The Tax Cuts and Jobs Act: Corruption by Another Name? Or Just Ordinary Law-Making? | Matthews' Blog

  2. Really interesting. You show how “elastic” the term corruption has become while demonstrating the practicality of using a narrower definition. It would be interesting to hear more about what legislative disclosure gaps you see in law, and practice, that might remedy unsavory personal kickbacks.

  3. Thanks Shanil for this interesting topic. I wonder if there was any disclosure of interests prior to voting for the tax reform bill? I’d be surprise if there was none.

  4. To John’s point above, disclosure seems like the most desirable reform. If it weren’t too onerous, perhaps legislators could announce their personal financial benefit for any major spending bills, almost like a personal cost-benefit analysis.

    I worry about the admissibility and secondary effects of more aggressive measures. Reforms that would aim to insulate legislators from the effects of their legislation — even beneficial effects — drive a wedge between legislators and their constituents, who in large part are represented by legislators who are perceived to be “one of them.” Further, perhaps the most popular constituency for American lawmakers to fight for (aside from “the middle class” or perhaps “our children”) is “the small business owner.” It would seem like a tough sell to say that no business owner (big or small) could serve in Congress without divesting.

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