Taxes

Will We Ever Get the Trump Tax Cuts?

The Senate made some moves this week, but there's still a long way to go to achieve real reform.

Michael Swartz · Oct. 20, 2017

As conservatives are painfully aware, the GOP congressional majority has thoroughly botched its top agenda item of repealing ObamaCare. The horrendous law has just enough popular giveaways to leave “moderate” Republicans in both chambers short on backbone and fearful of a ballot-box backlash next year.

But an even longer-standing maxim for the Grand Old Party is that of reducing taxes in the belief that lower tax rates will bring more economic activity and prosperity while actually increasing the government’s take. It worked for Ronald Reagan in the early 1980s and, to a lesser extent, for George W. Bush a decade and a half ago. (Alas, government also increased its spending of this newfound revenue so quickly that deficits increased, but that’s a story for another time.) Just like favoring entitlement spending that’s “free” money to the recipient, it’s hard to find someone who doesn’t think a little more in their pocket is a good thing — so tax cuts are always an easy sell. Democrats, however, relish the role of making people jealous over who else gets the money.

Donald Trump won his presidency by, among other things, promising to cut taxes and simplify the tax code. But given the record of this Congress, he also must have felt a booster shot at the bully pulpit was needed, and the Heritage Foundation was happy to lend him its platform.

“At the heart of our plans is a tax cut for everyday working Americans,” said the president. And if his “once-in-a-generation opportunity to revitalize the economy” through tax cuts is realized in full, Trump vowed, “We will lift our people from welfare to work, from dependence to independence, and from poverty to total beautiful prosperity.”

That all sounds great, but a lot of sausage must first be made, and it’s not going to be a pretty process. There’s no doubt that Democrats who have already ratcheted up their age-old mantra of “tax cuts for the rich” aren’t going to hand Trump a victory, so the ball will once again be squarely in the court of a handful of Senate Republicans least likely to get with the program.

The Senate did manage to pass a budget Thursday night in the first step toward tax reform. “Tonight, we completed the first step toward replacing our broken tax code,” Senate Majority Leader Mitch McConnell said. “We have a once-in-a-lifetime opportunity to replace a failing tax code that holds Americans back with one that actually works for them.”

As far as policy goes, on the one side, we already hear shouts from the sidelines about putting more emphasis on the corporate tax cuts or responding to the Democrats’ tired mantra by conceding that they may be right: “Neither the economic nor the moral arguments (for cutting the top tax rates) are compelling,” argues Ramesh Ponnuru in National Review. Unfortunately, people don’t react as well at the voting booth to corporate tax cuts unless they’re an ancillary benefit to their own pocketbooks — nor do they really care that the more well-off get more money back because they put more money into the system. (Second only to the race card in the Democrats’ hierarchy is the class envy card.)

And simplifying the system will be a mean feat as well, given that so many special interests have carved out their own goodies from the fatted calf that is the American taxpayer. Case in point: Realtors are whining that an enhanced standard deduction, a major feature of the initial Trump plan, will obviate the need for people to deduct their mortgage interest and thus “nullify the incentive” to buy a house. As many middle-class taxpayers can likely attest, there have been times where having this deduction helped lower the bill or increase the refund, but raising the standard deduction to nearly double its current level would have done a lot more good. Multiply that by the overt or covert persuasion of a thousand other businesses — for example, do you think H&R Block is interested in an easier tax system? — and you can see why this will be a struggle perhaps even more so than the failed repeal of ObamaCare.

Yet the stakes are high, and not just politically, as The Wall Street Journal’s James Freeman writes. “American workers are still living in an on-the-one-hand, on-the-other economy, rather than a booming economy. They need a policy change in Washington that emphasizes expanding opportunity over wealth redistribution.” With $3 trillion in assets waiting to be brought back to our shores — another point Trump made in his Heritage speech — the American economy would get a powerful shot in the arm. And if better days arrive prior to the 2018 election, those dire predictions of a Republican electoral bloodbath may be about as useful as selling short in this bull market.

But taxation’s “power to destroy” is what Washington insiders live for — which is why draining the swamp will help the rest of us keep more of what we earn.

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