Trump's 'tax reform' is more regressive than even Reagan's

Trump's 'tax reform' is more regressive than even Reagan's
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Stung by their inability to repeal and replace ObamaCare, Republicans in Washington have gleefully turned their attention to taxes and the budget. While touting “tax reform,” Senate Republicans have just released a budget outline that makes a mockery of any real reform of the tax code.

Instead of closing loopholes to pay for the rate reductions they propose (the true test of real tax reform), the draft budget resolution proposes to cut tax revenues by $1.5 trillion (with a “T”) over the next 10 years — and pay for it by adding to the deficit, rather than ending many of the numerous tax breaks for the wealthy built into the current tax code.

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The Senate budget resolution calls for $1.5 trillion in revenue reduction, but even that may turn out to be on the low side of what Republicans have in mind. The tax cut proposal recently outlined by the White House will cost $2.6 trillion over the next 10 years, the non-partisan Tax Policy Center estimates.

Despite Republican promises to help struggling working families, several independent analyses of their actual tax proposals have found the wealthy to be the biggest beneficiaries, with the top 1 percent of households getting 50 percent of the tax reduction benefits.

Working families might get a few crumbs of tax relief in the short term, but would lose far more in the long run. There are still few details from the White House or the Congress, but preliminary analysis suggests they are following an old political trick: promising rate reductions but not talking about the other tax changes that the bill will make.

In the end, rate cuts for many working families are likely to be offset by both the increase in the lowest tax rate — from 10 to 12 percent — and the elimination of deductions used by working families like personal and dependent exemptions, and the deduction for state and local taxes paid.

Meanwhile, the soaring deficits the GOP plans call for would eventually force deep cuts in spending on health care, education, and other programs that primarily benefit working families — and which have long been on the chopping block in other Republican budgets. So those huge deficits are a feature of the plans, not a bug.

The rich, on the other hand, will rake it in.

In addition to lowering rates on America's highest earners, the proposals would reduce the corporate tax rate, and lower the rates on business income that's “passed through” to the personal tax bills of rich people who own business partnerships and limited liability corporations — like the president, for example.

As an extra sweetener, companies that have been hiding profits in their offshore operations for years would be granted a special, super low tax rate to encourage them to do what they should have been required to do all along: recognize those profits as U.S. taxable income.

Given that polls consistently show that a majority of the American public want taxes on corporations and the wealthy to go up, not down, it may seem odd that Republican proposals move in the opposite direction.

But the rich, who are the natural constituency — and major funders — of the Republican Party, were promised massive tax reductions through the repeal of Obamacare’s taxes on upper income households. And Congress's failure to accomplish repeal has caused a falloff in Republican campaign fundraising — it's cost the National Republican Senatorial Committee alone $2 million, according to one estimate.

In an ideal world, the tax debate would focus on raising additional revenue to pay for urgent needs, including repairing and modernizing our crumbling public infrastructure. In the current political landscape, the best we can hope for may be the kind of deal struck in 1986, when President Reagan and the Senate Republican majority agreed to at least keep tax reform legislation from losing revenue. To pay for rate cuts, that law closed or narrowed many corporate tax subsidies.

These 1986 reforms worked for a while, until corporate lobbyists managed to undermine them with more loopholes. Eventually, industries with more political clout wound up with much lower effective tax rates than others because they obtained more and bigger loopholes.

In the current debate, these same forces are mobilized to hang on to their loopholes, at the expense of programs working people rely on. And without the discipline of an agreement to prevent revenue losses, any so-called “reform” quickly turns into a feeding frenzy by every special interest with a lobbyist in Washington.

The last thing the country needs is a sham tax reform designed to reward Republican donors with more tax breaks.

Lee Price, a former chief economist of the House Appropriations Committee, was a congressional staffer during the 1986 and several subsequent tax debates. Steve Quick is a former chief risk officer at Federal Deposit Insurance Corporation and Chief Economist for the Joint Economic Committee. They are both associate fellows at the Institute for Policy Studies.