Tax Reform Is Falling Apart
It is not surprising me at all that the spineless wheenies in Congress, who already unveiled a (mostly) spineless tax “reform” that is really just a giant tax cut for people who don’t need one paid for by huge deficits and higher taxes on the middle class, are already backing off on the few areas where they wanted to raise revenue by eliminating a tax break. As Kevin Drum at Mother Jones points out, if you aren’t going to eliminate any deductions and tax credits, you aren’t doing any meaningful reform to the tax code.
Tax reform usually has two goals that are not mutually exclusive. Eliminate complexity, inefficiency, waste, and opportunities for fraud and abuse; this is known as the “tax simplification” goal of reform. The “economic growth” goal is usually tied up in an aim to not bust up the deficit – by eliminating tiny tax breaks or areas that are complex, you usually are raising revenue which most reform plans then use to reduce the marginal tax rates everyone pays, thereby giving the economy a general boost. Of course, you can simplify and not lower rates (helps the deficit) or you can skip the first goal and just lower rates (a good old fashioned tax cut).
The GOP is staggering toward a tax cut. The Trump/Republican tax form plan can be summed as several big pieces. One is eliminating a tax on inheritances by the wealthiest of wealthy taxpayers (the top 0.1% of estates, all valued in excess of $5.5 million even after all the loopholes and other “tax-planning” plans used by their lawyers). Another is creating a new exclusive flat rate for usually wealthy “pass-through” companies such as hedge funds and law firms. Another is cutting the corporate tax rate nearly in half. It also collapses the top rates of tax into 1 lower rate, while raising the bottom 10% rate up to 12%. It also doubles the standard deduction we all use by eliminating the personal exemptions used by families. I literally could not design a tax “reform” that does more for unmarried, rich. old men if I tried, while putting the screws to middle-class families with a boss instead of a partner for an employer.
But I am highlighting all of this, and the two articles I linked, primarily because I find it hilarious that the GOP is even considering a “partial repeal” of the state tax deduction. Assuming they go through with it, the idea is even worse than full repeal or complete capitulation. Why? One of the reasons certain parts of the tax code are frustratingly complex (deductions for contributions to traditional IRAs and tax rates on dividend income, for example) is because of the partial, have-your-cake-and-eat-it-too mentality described by the partial repeal. In their trial balloon, the GOP is thinking out loud about maybe choosing between deductions. They could also go for an income-based phase-out (like the deductions for IRAs). Or, as they openly discussed, make it available only in certain areas based on property tax rates. All of these ideas would turn a single line on a itemized deduction worksheet into a whole new worksheet unto itself. So, in the name of tax simplification and reform for some, the GOP is considering adding pages of worksheets and instructions to the tax code for others.
This is why policy on matters as complex as taxes and healthcare should not be done hastily, or on a partisan basis, or as part of some photo-op by non-experts who say crap they think sounds good. Tax reform is badly needed, but this is not the way to do it.