Taxes

Does GOP Tax Reform Stand a Chance?

Given Republicans' track record, it's a stretch to think pro-growth tax reform will be enacted.

Brian Mark Weber · Sep. 29, 2017

Fresh off another major policy failure in the ObamaCare repeal effort, President Donald Trump and Republicans are giving their increasingly hopeless and skeptical supporters yet another promise to bring about real change. This time it’s an effort to overhaul the tax code.

As with just about any Republican initiative these days, the shiny package often ends up like an ugly sweater on Christmas morning: Sure, it’s better than nothing at all, but it’s not the new bike you thought you were getting. And once Americans find out what’s in the new tax plan, some may wish they had left the package unopened.

Phillip Klein explains, “More than eight months into the term of President Trump, Republicans still haven’t released a detailed tax plan. Instead, what they released on Wednesday was yet another outline. On the surface, the plan promises tax relief to families, but without more information, it’s impossible to say whether that’s true. Under some assumptions, many upper middle-class families could be looking at a tax increase.”

The basic proposed changes to the tax system would benefit most people, if enacted as planned. For example, the current standard deduction of $6,000 for singles would double to $12,000, and the standard deduction for married couples would double from $12,000 to $24,000. Additionally, as Fox News reports, “The plan also collapses the number of personal tax brackets from seven to three. By simplifying the system, most Americans would be able to file their taxes on a postcard-sized document, a concept Treasury Secretary Steve Mnuchin touted this past spring.”

In addition to the expanded standard deductions and lower corporate tax rates, some of the other features of the plan that fiscal conservatives are likely to support (but which Democrats and even some Republicans will fight) include making it easier for multinational companies to bring money into the United States as well as eliminating the alternative minimum tax and abolishing the much-hated estate tax (also known as the death tax). The mortgage deduction, child tax credit and earned income credit will likely remain, although the details are yet to be hammered out in committee, and the dramatic rise in the standard deduction would functionally eliminate them for most Americans. Part of the plan that will be hard to get through is removing deductions for state and local taxes, although this will primarily affect residents in high-tax blue states.

President Trump marketed his tax plan in a formal unveiling in which he stated, “We’re doing everything we can to reduce the tax burden on you and your family. By eliminating tax breaks and loopholes, we will ensure that the benefits are focused on the middle class, the working men and women, not the highest-income earners.”

On the surface, the plan sounds great, but the final details are yet to be determined. And how this will look at the end of the process could affect people’s lives significantly. For example, while reducing the number of tax brackets from seven to three is a good step, where the lines fall will necessarily determine whether someone pays less or more in federal taxes.

The Wall Street Journal reports, “The most important news is that the plan would make U.S. businesses more competitive around the globe. The corporate rate will fall to 20% from 35%, which is the highest in the developed world. This is not as low as President Trump’s floated 15% or Ireland’s 12.5% but would bring the U.S. below the industrialized-world’s 22.5% average. This would improve U.S. corporate tax competitiveness from a depressing 35th out of 35 nations in the Tax Foundation’s annual index, which is below evenFrance.”

But what about the broader impact on the country? Will the proposed tax plan really lead to job growth and economic expansion? History says yes. Take a look at the 20-year expansion thanks to President Ronald Reagan. Moreover, The Heritage Foundation reports that Reagan’s tax cuts resulted in a doubling of federal revenues “from just over $517 billion in 1980 to more than $1 trillion in 1990. In constant inflation-adjusted dollars, this was a 28 percent increase in revenue.”

Grover Norquist, president of Americans for Tax Reform, says this tax plan could yield 4% growth.

Lest anyone think this plan is being taken directly out of Reagan’s playbook, however, there are some aspects of it that are more populist than conservative. For example, the wealthiest Americans may end up paying higher taxes to offset the breaks for lower- and middle-class taxpayers. And since President Trump’s plan may do away with some itemized deductions, some middle-class taxpayers may have a higher tax bill next time around. Yet, despite some misgivings, the House Freedom Caucus has endorsed the tax plan.

Now that the plan’s basic framework is becoming clearer, the real battle begins as the president tries to gather enough votes in his own party while attracting what may be needed Democrat support. And he has to do this without caving to the other side. If President Trump starts referring to senators Schumer and Pelosi as “Chuck and Nancy” during the tax debate, you know we’re in trouble.

Chris Stirewalt of Fox News writes, “As Trump trudges through this battlefield, Schumer and Pelosi will be waving from afar, constantly offering Trump the hope of a grand bargain on taxes. As the legislation grinds through committees and faces various Democratic delays, that party’s leaders will be sure to always encourage Trump to keep hope alive.”

Some of Trump’s supporters may be leery of any mention that the president might have to negotiate with Democrats to bring about major changes to the tax code, but as long as the majority in the Republican Senate is razor thin, and as long as the likes of Susan Collins and John McCain are waiting to torpedo anything that has Trump’s name on it, the fact is that Democrats will put their fingerprints on whatever comes out of this process. Already, Democrats are rolling out the clichés about how Trump’s tax plan will benefit the rich while soaking the middle class and the working poor. And, of course, they’re asking how the government can afford to “pay” for the tax cuts. Strangely, though, these same Democrats never ask how we’re going to pay for higher taxes when they’re in power.

Whatever emerges from Congress and lands on the president’s desk (assuming that a bill ever gets there), the final version will likely be far different from that which President Trump unveiled Wednesday in Indiana. And based on the fact that we have no border wall, and no repeal of ObamaCare, the odds of us seeing any tax benefits by next April seem minimal.

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