Pursue tax reform from middle out, not top down

Pursue tax reform from middle out, not top down
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To hear Republicans in Congress talk about tax reform, you would think that ensuring fairness for the middle class and promoting economic growth are two conflicting goals. They’re not. In fact, the best way to grow our economy is from the middle out, not the top down. This requires a tax code that rewards work, promotes good jobs and helps Americans climb the economic ladder. Of course we want to encourage investment, but that doesn’t require a lopsided tax plan that provides nearly all of the help to the very top in the vain hope that somehow the benefits will trickle down to everyone else.

The most recent example of this misguided push to enrich the so-called job creators at the expense of the middle class was House passage of legislation to repeal the Affordable Care Act. This bill, which GOP leaders touted as a lead up to even broader tax changes, eliminated over $1 trillion in healthcare assistance for working families in order to provide nearly $1 trillion in tax cuts mostly for corporations and wealthy individuals. Two of the largest tax breaks in the GOP bill do not provide a single penny of tax relief to couples earning less than $250,000 a year, while households earning more than $1 million would get an average tax cut of more than $50,000. At the same time, the Republican bill would cut tax credits for health insurance now received by some workers, especially those who are older, in addition to more generally cutting coverage and raising costs.

So-called tax reform plans put forth by President Trump and by House Republicans continue this theme of focusing the benefits on the very wealthy. In assessing the House GOP tax reform blueprint in the fall, the non-partisan Tax Policy Center found that by 2025, over 96 percent of the net tax cuts under the Republican plan would be provided to households with incomes over $1 million.


President Trump has put forward only a one-page outline missing many key details on tax reform, but again it seems very tilted toward the top by focusing on cutting the top rate for individuals, eliminating the estate tax and reducing taxes on corporations without any concern about the impact on the federal debt. The Trump administration’s claim that these tax cuts will somehow miraculously pay for themselves, despite a mountain of evidence to the contrary, is both foolish and reckless. In a recent University of Chicago poll of 37 economists, not a single one believed that Trump’s tax cuts would pay for themselves. The middle class will ultimately get stuck with the bill in the form much higher deficits — perhaps as much as $6 trillion under President Trump’s plan — that will require cuts in programs like Medicare, as well as force higher taxes in the future.

There is a better way — one that focuses on growing the economy by helping the middle class succeed. Targeted tax relief to help families raise their children and save for the future, to better put higher education within reach and to expand tax assistance for families trying to work their way into the middle class would all promote this objective.

There are plenty of places to tighten up tax loopholes to pay for these investments in working families. Two examples that I have been working on are closing what is known as the carried interest loophole, which allows millionaire hedge fund managers to avoid paying incomes taxes, and preventing companies from moving offshore to gain a lower tax rate. Both of these loopholes make our tax system less fair and less effective and should be closed regardless of the outcome of broader tax reform.

In terms of corporate taxes, we could lower rates without increasing the deficit by reforming other aspects of corporate taxation. For example, U.S. multinational corporations should not be allowed to shelter profits overseas, and companies that offshore jobs should not be eligible for tax breaks.

The middle class is not incidental to economic growth — it is the engine of growth. Tax reform must therefore focus on working families, rather than shower the very wealthy with even more tax breaks. Such a focus would garner bipartisan support, which history shows is the only way tax reform can really work.


Levin represents Michigan’s 9th District and is a member of the House Ways and Means Committee. The views expressed by this author are their own and are not the views of The Hill.