Tax Reform

A Missed Opportunity on Tax Reform -- by Jerry Jasinowski

The late Sen. Russell Long of Louisiana, who served as Chairman of the Senate Finance Committee for many years, described the tax reform process thusly: “Don’t tax you, don’t tax me, tax that fellow behind the tree.”

Now that the Republican majorities in Congress have made a hash of health care reform, earning nothing but criticism for their trouble, they propose to salvage what is left of their credibility by reforming the tax system. If they really think this will be easier than health care reform, they will soon be set back on their heels. Predictably, President Trump and the Republican leadership of Congress are selling tax reform as an opportunity to cut taxes. Even some Democrats will sign on for that because everyone likes tax cuts, rather than doing the hard work of tax reform.

President Trump has the talk, but it’s not clear he is willing to do the walk for real tax reform. He deserves credit for his proposed reforms for reducing the corporate tax rate and generally lifting the tax burdens on small business. The applause he received during his National Association of Manufacturers speech confirms that business in general is cautiously optimistic about his tax proposals. The NAM also appreciates his emphasis on manufacturing and “Made in America” themes.

But the Trump tax initiatives won’t significantly encourage economic growth because: they don’t eliminate wasteful tax loopholes, don’t make the tax codes simpler, are not going to be permanent, don’t encourage investment and are unlikely to gain bipartisan support. Predictably, the bulk of the tax cuts would go to the wealthy who do not need them. The Trump tax initiatives bear no resemblance to the bipartisan tax reforms of the Reagan era. Let me be more specific.

The Republicans will again attempt to dodge the debt issue by promising that tax cuts will generate enough economic growth to pay for themselves. This is pure political hokum – just ask the people of Kansas who effectively bankrupted their state treasury for the promise of economic growth that never materialized. Nor has the administration or Republican leaders in Congress identified any significant loopholes they plan to close in order to pay for the tax rate reductions. The President’s tax proposals are likely to cost at least $2.2 trillion in lost revenues.

While the President certainly should be applauded for increasing the standard deduction, there is inadequate effort to cut the taxes for low and middle income tax payers. The biggest tax burden for working people is payroll taxes and no one is talking about cutting them. Payroll taxes are the basis of Social Security and Medicare and are already in the red, sinking deeper into the red with each passing year as our population ages.

There is no serious question that our tax code has become encumbered with countless special interest benefits that reduce revenues without promoting economic growth. But the President and the tax writing committees have thus far made no effort to reduce these loopholes. To loudly claim that their tax proposal would simplify the tax code, reminds me of the old joke: “I’m from the government and I’m here to help you.”

Finally, to reform a complicated tax code has always required both parties working together to remove loopholes and cut rates. It’s clear that real reform of this system will require compromise and bipartisanship, which is what we all should be strongly encouraging.

Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.. October 2017

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