White House and Republicans keep ducking through tough tax choices

White House and Republicans keep ducking through tough tax choices
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Like college students who just can’t bring themselves to write that paper, President Trump and congressional Republicans keep putting off the inevitable. But one day soon they are going to have to start making tough choices about a tax bill. But as this week’s Big Six outline proved, they still are not ready. If this reminds you of the GOP’s struggles to replace the Affordable Care Act, it should.

The highly-promoted tax plan was, to be candid, a bit of a bust. Like the outline the White House hastily rolled out last April, this one was long on pledges to cut taxes but woefully short on the details, especially about how all those generous tax cuts would be financed. The result is the outline of a massive tax cut for business, including both corporations and pass-through firms such as partnerships, a substantial tax cut for high-income households, and what will likely be a very modest tax cuts for middle-income people.

In truth, it is hard to know since so many details are missing. For instance, after working behind closed doors for months, the Big Six agreed on three individual income tax rates of 12 percent, 25 percent and 35 percent. But they could not settle on the brackets that would go with those rates, so we don’t know who would pay which rate. And oddly, the framework hinted, but couldn’t quite bring itself to say, that Congress might want to add a fourth rate that would be higher than 35 percent. How much higher is anyone’s guess.

The Big Six also promised lots of other individual income tax cuts. It would repeal the alternative minimum tax and the estate tax, roughly double the standard deduction, expand tax benefits for families with kids, and sharply reduce the tax rate on pass-through businesses. Cutting the tax rate from 39.6 percent to 25 percent for those pass-throughs (and, no, many of them are not small businesses) would be a massive windfall for the very highest-income households.

For all that, the outline fails to identify a single individual tax preference it would eliminate. Despite early rumors to the contrary, it is even silent on the state and local tax deduction though White House aides insist it is on the hit list. By contrast, the new plan carefully identifies those tax breaks the Big Six would protect, including such big-ticket preferences as the deductions for mortgage interest and charitable giving and tax subsidies that “encourage work, higher education and retirement security. “Similarly, it identifies only one business-side revenue raiser, a “partial” limit on interest deductibility, while promising to preserve business credits for research and low-income housing.

The Tax Policy Center will have a formal analysis of the outline soon, but it is fair to say that the Big Six proposal would leave a multitrillion-dollar hole in the budget. The Trump administration, it seems, will leave the hard work of filling that hole to Congress. Tax cutters will make implausible claims of economic growth that, they say, will finance some of their generosity. But even the 3 percent (or higher) growth that the president promises won’t close the gap. And that means Congress gets to take away some of the more than $1 trillion in tax expenditures that currently litter the IRS code.

That, in fact, is what Congress will be doing for the next several months: Trying to balance between those tax cut promises and the reality of antagonizing constituents and campaign contributors. This is all an eerie echo of health care. For seven years, Republicans dined out on gauzy rhetoric about “repealing and replacing ObamaCare.”

But when it came time to confronting the dirty details, the president ducked. He never did propose his own alternative. And congressional Republicans, deeply divided over the nitty gritty and without presidential cover, could never reach consensus. As Sarah Palin used to ask, “How did that work out for ya?”

Howard Gleckman is a senior fellow at the Tax Policy Center, a joint venture between the Urban Institute and the Brookings Institution. He edits the center’s TaxVox fiscal policy blog and Daily Deduction newsletter. He is a former Washington correspondent for BusinessWeek, where he was a 2003 National Magazine Award finalist.