President Donald Trump and congressional Republicans are selling their tax reform proposals as a needed modernization and simplification of the tax code that will bring corporations and jobs back to the U.S. and bring relief to the middle class. This sounds good, and there is broad agreement that after 30 years and in this global economy, the tax code is due updating and reform. But there remain some big questions here?
To begin with, as with their attempt at health-care reform, now the majority party is attempting to pass major legislation under budget reconciliation without any input or support from across the aisle. The attempt to rush such a major and complicated piece of legislation through before the year’s end should give us pause.
Secondly, with the details of the plan released this week we’ll find out more about who really benefits here and how much. But based on the plan's broad outline, the non-partisan Tax Policy Center determined that over the next decade 80 percent of the total savings would go to (the wealthiest) 1 percent of the population. And thirdly, while there is fairly broad agreement that the corporate tax rate should be adjusted downward to put the U.S. rate more in line with rates elsewhere, thus enticing American corporations to build or relocate here rather than abroad, there are a variety of equations here with very different outcomes.
Economist Lawrence Summers, who favors tax reform, points to the 1986 (bipartisan) reform that cut taxes while broadening the tax base, thus keeping it revenue neutral (not adding to the deficit). Despite the way it has been represented, the current plan would leave many big loopholes in place that protect big money from taxation. What about the obvious sheltering of corporate profits offshore? What about corporation-like “pass through” entities that will be allowed to continue to avoid taxation?
What about other tax shelters such as carried interest, real estate exchanges and option-based executive compensation? Another reform Summers suggests is to amend the way the current system encourages “leveraging,” when it could be encouraging investment. These are all reforms that could bring a new measure of uniformity and stability, while raising revenue to offset the proposed cuts.
We should be asking: “Why aren’t these big loopholes being addressed? Why are Republicans, who are so typically focused on the negative impact of the federal deficit, suddenly ready to add another trillion and a half? This will put enormous pressure on the budgeting process, and make it doubly hard to move forward with long-awaited investment in infrastructure and consider other wise investments that could bring direct, targeted help to those who really need it and to the country as a whole.
All this begs the question. Is what Republicans are attempting to rush through here really reform or mainly a tax giveaway to corporations and the l percent, with a little reduction in taxes to placate the rest of us? Is this mainly an effort to get something, anything done this year to placate Republican donors and give some cover for the 2018 election? Doesn’t something this important and complex merit more broad-based and careful consideration? Is there any comprehensive vision for the country in the tax or budget proposals we’ve seen from the Trump administration?
Steve Bullington is a resident of Adrian.