thebigp

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The new Republican tax plan harkens back to Ronald Reagan’s 1986 reform package, promising a future of stronger growth with less economic puppeteering from Washington. It’s not a perfect plan. It is less ambitious than various overhauls that conservative candidates have floated in presidential campaigns. But after years of abysmally low economic growth thanks to Obama’s tax-and-regulate measures, the Republican outline is a bold change.
On paper, tax reform should be a gimme for a party that gives consistent lip service to tax cutting and controls both houses of Congress and the White House. It is, moreover, desperately needed. Over the years, both parties have been complicit in adding tax incentives to make the masses behave the way Washington wants. Thanks to the generosity of Congress, companies with expensive lawyers can get tax benefits to produce tuna in American Samoa, mine coal on Indian reservations, or renovate Boston’s Fenway Park. But the tax code is for taxing, and it should do so equitably.
As the “Repeal and Replace” fiascos in both houses of Congress showed, it’s much harder to agree on reform than it is to oppose a broken system. As with Obamacare, Republicans can’t count on any support from Democrats, who’ve steadily lurched leftward since the last tax reform go-round. The 1986 reform—which included big cuts in corporate and individual tax rates and closed loopholes—passed the Democratic House by a voice vote and the Republican Senate 97-3.
The new GOP plan has three main components: dramatic cuts in business taxes, individual rate cuts aimed at the middle class, and tax simplification. There’s a lot to like, even if the first two are extremely precarious given the Republicans’ slim Senate majority and fractiousness. The Democrats are eager to stop anything they can deride as “tax cuts for the rich.”
Cutting the corporate tax rate—at 35 percent, ours is among the highest in the world—would drive economic growth immediately. The GOP plan would lower that rate to 20 percent, and small businesses paying the “pass-through” rate would be taxed at a rate no higher than 25 percent. Changes in how businesses depreciate equipment should also spur investment.
The GOP plan can credibly be sold as “middle-class tax relief.” It nearly doubles the standard deduction, increases child tax credits, and makes those credits available to more taxpayers. There’s an option for congressional committees to keep the individual tax figure for millionaires at the existing high rate of 39.6 percent. The popular deductions for charitable giving and mortgage interest are preserved.
The plan also honors the long-term conservative goals of simplifying taxes and making them fairer. Eliminated are all but the most politically delicate deductions and credits. The change to the standard deduction would make itemization less important for more people. The plan goes a long way toward getting Congress out of the business of using the tax code to induce allegedly desirable behavior. It would further eliminate the estate tax and the alternative minimum tax—although these two provisions look more like bargaining chips to be negotiated away to placate deficit hawks.
Democrats will feign outrage at all of this. Fine. Let them defend one of the highest corporate rates in the world. Let them explain why the top 50 percent of U.S. households should pay 97.3 percent of all personal income taxes. If in the process Republicans can agree to simplify the code and eliminate more of its credits and deductions, they will have achieved something. They’ll have to work fast, though: The longer this reform sits in committee, the more time lobbyists will have to persuade wobbly members to reinsert special interests’ favorite provisions.
This is a worthy plan. If the party of free enterprise and low taxes can’t pass it, it’s not clear what they’re there for.
source-weekly std,