When Reagan and Tipper O’Neil Did Tax Reform, it Took a Year and a Half
This is how you know Trump has little hope of passing anything. Tax reform is something that happens once every 25 years at best. And Trump is not exactly setting himself up for success if he thinks this can be done quickly.
First and foremost, what his Treasury Secretary put out there yesterday-which may as well have been written on a napkin it was so cursory and lacking specifics-wasn’t tax reform. Tax reform-for better or worse-is by definition revenue neutral. If it’s not revenue neutral then-it’s not tax reform.
What you have is a tax cut. It’s Sam Brownback economics.
Steve Mnuchin engaged in classic Trumpian hyperbole on the alleged tax reform plan:
“Treasury’s Mnuchin: Trump wants 15 percent corporate rate in ‘biggest tax cut’ in US history.”
Ok. Let’s be very clear: if this is the biggest tax cut in history, it’s not tax reform. Tax reform is revenue neutral. But here’s where the rubber meets the road. If you want to both drop corporate rates to 15% and also be neutral it means you have raise someone else’s taxes so wealthy, fat cat corporations get their biggest tax cut in history.
Which brings us to something else: because it’s tax reform doesn’t mean it’s good. You can do real tax reform and it can be a very bad deal for middle class Americans and the working poor.
What you normally hear is the GOP is going to lower rates and close loopholes. The taxes they usually want to lower are the top individual rates and the corporate rates. In other words, cut taxes for the rich.
But when you get to loopholes, this is where the conversation normally peters out. What loopholes do you want to close?
This is where the Republican you’re talking to will likely deflect and abruptly change the subject. This is the thing. Yes Reagan did tax reform. And it screwed the average American. It went after middle class deductions just like this latest incantation of tax reform would likely do-assuming it could ever get off the ground which is dubious.
In 1986, for instance they got rid of the deduction for credit card interest. This was a deduction that was very helpful for the middle income and the poor.
The Trump WH yesterday on being asked about it just kept saying ‘It’s a tax cut.’ Again, a tax cut is a tax cut not tax reform.
But what they never answer is: a tax cut for whom? This is the sordid truth of tax policy: there’s always going to be winners and losers. Somebody’s taxes won’t be cut.
By the way, arguably tax reform is even worse than a straight tax cut for the rich in that in trying to be revenue neutral, taxes are effectively raised on middle and low income people.
Tax reform is by no means a panacea. The details matter. The theory is that a ‘simpler’ tax code has some great virtue to it-less friction, increasing growth, etc. There is little evidence for it.
What all this talk of tax reform and complexity abstracts from are distributional issues. Whose taxes will be cut, who won’t get a tax cut, and whose taxes will actually go up?
But once you start asking these questions your GOP conversational partner quickly checks out.
UPDATE: Lawrence O’Donnell mentions another part of Tax Reform 1986: the Alternative Minimum Tax (AMT). As O’Donnell says, the AMT actually made the tax code more complex. Sometimes to make it more fair you have to make it less simple.
P.S. As we saw in my poll out last week, the long awaited poll results are in, and right now I’m just 11 points down vs. Peter King (GOP-NY-District 2). And the voters don’t even know who I am yet.
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