The administration has decided to tout its tax reform proposal as “the biggest of all time,” but it is also irresponsible and ill-conceived. The country — and their elected leaders in Congress — should resist.
Of course, there is no question that our tax code is in need of a major restructuring. It was last substantially overhauled in 1986, and in the intervening years, we have eroded the tax base with a series of credits, deductions and preferences that add up to nearly $1.6 trillion in annual tax expenditures.
These public resources are allocated in ways that exacerbate inequities and undermine goals of shared prosperity, economic growth and social security. It has long been apparent that we can do better than living with a tax code that is needlessly complex, unfair and ineffective.
As such, meaningful tax reform belongs as a part of any economic policy agenda. Rolling back the special interest carve outs in the tax code could facilitate a broadening of the tax base and a lowering of rates for the vast majority of Americans. There are additional benefits associated with simplification and a basic consolidation of tax-preferred accounts that have proliferated over the last 30 years (401ks, 403bs, IRAs, Roths, Esa, SEPs, etc.).
Yet, what makes tax reform difficult is that it encapsulates the hard choices of governing when burdens are shifted. At this moment, tax reform should be employed to ensure that those at the top — whose share of the nation’s resources has vastly increase during the past generation — pay more, not less.
The centerpiece of the proposal unveiled this week, a reduction in the corporate tax rate from 35 percent to 15 percent and a rate reduction which overwhelmingly benefits those earning the most, is not a step in the right direction. These changes will balloon the federal deficit by an estimated $5 trillion over the next decade.
This is the "trickle down" theory, where tax cuts on capital and wealth “pay for themselves,” in the words of Treasury Secretary Steve Mnuchin, by sparking economic growth. Without evidence that this can or will occur, this is a definition of wishful (or magical) thinking.
As a political matter, those committed to working with facts and evidence have ample reasons to be skeptical of legislative changes advanced by those in power with substantial but opaque economic interests. Democrats would be justified to avoid negotiations until they learn more about how the president and his family will personally benefit from proposed changes.
Beyond that, responsible tax reform will require detailed analyses of how multiple reform provisions will interact with one another and ultimately distribute the tax burden — calculations that can’t just be done on the back of a cocktail napkin. Perhaps not surprisingly at this point, the Trump proposal was light on details (It was a single page — with bullets!)
Since tax reform only comes around once in a generation, the rising generations have a right to ask what they get out of the deal. They are the ones who will have to live with this system the longest, and they're also are the generation stymied most by the current economy, typified by stagnant incomes and low savings.
Right now, the economy is not delivering much for millennials, even as they are increasing their role in the economy. Yes, lower rates are attractive in theory, but less so if there’s an upward distribution of overall assets.
Millennials should be particularly dismissive of what appears to be the emerging political strategy employed by the White House and Republican leaders, which is to accept tax cuts that are temporary (expiring in 10 years) so that they can be passed with a simple majority (using the reconciliation process) instead of requiring any votes from the loyal opposition.
This is a worst-case scenario. It showers benefits on the corporate sector — increasing inequality — and eventually hands the bill to millennials and their younger siblings. That’s not fair or equitable, violating the basic principles of reform right out of the gate.
Reid Cramer is a senior fellow at New America, a nonpartisan think tank based in Washington, D.C. Prior to joining New America, Cramer served as a policy and budget analyst at the Office of Management and Budget, where he helped coordinate policies on housing, savings, economic development and program performance evaluation.
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