The big downside to tax reform

Published on Friday, 5 May 2017 20:55
Written by Jennifer Rubin

If Republicans ever get on with tax reform legislation, they might want to rethink their and the president’s approach, which mirrors 1980s-style tax reform. They want to lower rates and reduce deductions on both the corporate and individual sides of the tax code, which will start a gusher of red ink and give the wealthy an outsized tax increase.

That sure does not sound like the populist candidate who won the presidency. At various times President Donald Trump promised that the rich would pay more and that his own taxes would go up. There is good reason for taking such positions.

In the recent Politico/Morning Consult poll there was substantial support for “Increasing tax benefits for child-care costs (67 percent say it should be in the eventual bill), cutting the tax rate for small business from the individual rate to 15 percent (65 percent) and doubling the standard deduction for individuals (63 percent).” However, when you get to cutting the corporate tax rate to 15 percent only 37 percent approve. (Wait until they find out rich people can incorporate to get the big tax break.)

In addition:

* The deficit also looms as a potential stumbling block: Forty-six percent of voters say they would support a tax reform bill only if it didn’t increase the federal deficit, compared with 28 percent who say they would support a deficit-increasing tax bill, “as long as [it] achieved certain tax reform goals.” More than a quarter, 26 percent, are undecided.

* This poll matches other surveys that show support for middle-class tax cuts but not for the rich or for corporations. Pew Research found last month a decidedly populist sentiment when it comes to taxes: “Among the public overall, 62% say they are bothered ‘a lot’ by the feeling that some corporations don’t pay their fair share of taxes, and 60% say the same about some wealthy people not paying their fair share.” Republicans’ concern about fairness has dropped 11 points in the past two years. One is struck by the relative lack of enthusiasm for tax reform:

* While the feelings that corporations and the wealthy do not pay their fair share are by far the top frustrations among Democrats, no single concern stands out among Republicans. No more than about half say they are bothered a great deal by the complexity of the tax system (49%), the feeling that corporations fail to pay their fair share (44%), or the feeling that some wealthy people do not pay their fair share (40%).

People’s own tax burdens are not a leading concern in either party, though Republicans and Republican leaners are more likely than Democrats and Democratic leaners to say they are bothered a lot by the amount they pay in taxes (35% vs. 21%).

* On the merits, there is reason to doubt how much bang for the buck one can get from corporate tax reform. Greg Ip pointed out that the impact on gross domestic product in other countries after they lowered their corporate tax rate was tiny (less than 1 percent), although it increased investment more dramatically. Ip warns, “[Trump’s plan] would be paid for with a dramatic increase in government deficits, which in theory should raise interest rates and crowd out the private investment, neutralizing some of the benefits of lower taxes. Interest rates haven’t responded to massive government deficits lately because private investment has been so lackluster. If those dynamics change, Mr. Trump’s growth plans could face yet another impediment.”

Tax reform may not be uppermost in most voters’ minds, but the top income-earners are still enjoying the benefits of the George W. Bush tax cuts. If Republicans hope to play on voters’ sense that they are getting clobbered by taxes, they may be disappointed. On the flip side, voters are likely to get very mad if they see a tax code cutting taxes for the rich and for corporations and increasing the debt. Unfortunately for Republicans, that is a fairly apt description of what they are seeking.

Jennifer Rubin writes the Right Turn blog for The Post, offering reported opinion from a conservative perspective.



Posted in New Britain Herald, Editorials on Friday, 5 May 2017 20:55. Updated: Friday, 5 May 2017 20:57.