Congressional Republicans have come up with a tax plan featuring many worthy reforms that would be good for the overall health of the nation, though getting past the shock of winners and losers will take a dose of altruism.
There is widespread agreement that the current 39 percent corporate tax rate is hurting our economy, stifling growth and pushing corporate dollars and individual wealth overseas. President Barack Obama proposed eliminating loopholes and exemptions to bring the tax rate down to 28 percent in his 2016 business tax reform framework.
House Speaker Paul Ryan would take Obama’s wisdom a step further in the proposed Tax Cut and Jobs Act by bringing down the corporate rate to a very competitive, and perhaps overly aggressive, 20 percent. Yes, there are trade-offs for such a tax cut. But the downside — the cut, along with others, would add $1.4 trillion to the national debt in 10 years — is outweighed by the benefit of a cleaner, fairer tax code.
Part of the hard sell to the public and corporate lobbyists is that there will be losers in this tax plan. Republicans are eliminating both corporate and individual income tax deductions and loopholes to help pay for an overall lower corporate rate and larger standard deductions for individuals. That means the biggest losers in this reform will be those who took best advantage of tax policy: the savvy, well-informed taxpayers who are experts at avoidance and evasion.
Constraining the home mortgage interest tax deduction to the first $500,000 of value and eliminating it for second homes is the right thing to do. The policy doesn’t actually encourage home ownership, but rather a heavy debt load for Americans. We could support eliminating the exemption entirely to help bring down the cost of the plan.
Eliminating deductions for state and local taxes, while unpopular among municipal and state governments worried voters will be less likely to support tax increases, makes sense, as tax burdens vary so greatly by location. A person’s ZIP code shouldn’t determine their federal tax burden.
Efforts to eliminate the estate tax (a tax only imposed on estates worth more than $5.6 million) are misguided. Keeping it would allow President Donald Trump to prove he’s not looking for his heirs to personally benefit, while retaining $172 billion more in revenue, according to The Wall Street Journal.
Republicans are also wrong to expand the child tax credit to households making up to $230,000 from the existing limit of $110,000. The credit, if it remains, should be for the benefit of middle-class Americans and the working poor.
Reducing corporate deductions for capital investments, business interest, and domestic manufacturing is the right thing to do. The deductions incentivize poor business decisions and lead certain industries, like utilities, to pay significantly lower tax burdens. We hope Republicans find a way to stop corporations from sending profits abroad to escape American taxes.
Democrats are rightly raising alarm about adding to the national debt, and we are less than pleased with proposed Republican budget cuts clearing way for passage through reconciliation with only 51 votes in the Senate. But we’re reminded that Obama’s American Recovery and Reinvestment Act of 2009 was projected to cost almost exactly $1.5 trillion in the 10 years from 2009 to 2019.
We hope Republicans can find a path forward that includes their reforms, reduces the impact on the budget and holds strong in the face of intense lobbying.
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