Is the GOP getting serious about tax reform at last? Republicans in Congress say they'll unveil the outlines of a consensus plan in two weeks, as President Trump hits the hustings to stump for tax reform. We hope this isn't another false start.
"Reform" is one of those words that sounds easy, but really isn't. Every political interest group has a dog in the fight, and no one wants to give up a cherished deduction. And few politicians want to be seen as cutting taxes on Americans in the top income brackets or corporations, a sure way to be accused of "tax cuts for the rich," as the progressives' anti-tax-cut mantra goes.
Still, it seems as if both Congress and the president are aware that time is running out, and that next year — a midterm election year for Congress — doing anything bold or smart might not be politically possible. The political window is still open, but it might shut soon.
A poll released Thursday by the pro-tax reform Club for Growth, conducted by Fabrizio, Lee and Associates, put it bluntly: "If Republicans fail to pass tax reform, the situation will be bleak. Nearly 1 in 5 will oppose members if they do not pass tax cuts. Another 25% of Republican voters will not support either party — meaning they will likely not vote at all."
For a party desperate to maintain control of both houses of Congress, this is not good news. Our own IBD/TIPP polling shows that Americans overwhelmingly blame Congress, not President Trump, for Washington's current gridlock by nearly 3-to-1. Since Republicans are in control, that should be a warning both to the party's leaders and its followers.
That's why we're heartened to know that the GOP is taking seriously the need for tax reform, which holds the key to future economic growth, jobs and higher wages.
Trump on Wednesday said he'd like to see the corporate tax rate cut sharply from the current level of around 39% to 15%, in a bid to boost U.S. tax competitiveness. As we've mentioned numerous times, among major economies, U.S. corporations face the highest marginal tax rate in the world. It's time to end that bit of foolishness.
"The rich will not be gaining at all with this plan," Trump said, in what sure looked like a sop to the Democrats. "We're looking for the middle class, and we're looking for jobs. Jobs, meaning companies."
We're fine with much of what Trump vows, but we hope that he doesn't mean to exclude the upper incomes from tax cuts. If their taxes aren't cut, it will mean the tax code will be more progressive, not less. For tax reform to mean anything, it should lead to lower, flatter, fairer taxes for everyone, with fewer deductions and a broader base.
Still, Trump is right about one thing: Tax reform is really about growth, not about redistribution. It's absurd to suggest we can only cut taxes on the middle class and the poor, since the top 10% of all incomes pay over 70% of all the taxes.
"If we achieve sustained 3% growth," Trump said two weeks ago in Springfield, Mo., "that means 12 million new jobs and $10 trillion of new economic activity over the next decade."
This should be the bottom line. When Democrats talk about "neutrality," they're always seeking offsets for tax cuts by hiking taxes elsewhere. But that shouldn't be anyone's focus. If you really want to "offset" tax cuts, do it by reducing spending. Getting rid of the $1 trillion-plus albatross that is ObamaCare would be a great start.
What will the GOP come up with? There are plenty of pretty specific proposals out there for reducing tax burdens on Americans. Corporate tax cuts. Individual tax cuts for all. Eliminating the death tax and the grossly unfair alternative minimum tax. Reducing taxes on capital and dividends. Tax reductions for small businesses and immediate expensing of investments. They could also slash taxes on repatriated capital that's now held in overseas accounts by American firms that don't want to be punished by high U.S. taxes. If only half the $2.5 trillion or so of the money now sitting in overseas accounts returned, it would fuel hundreds of billions of dollars in new investments and tax revenue.
The point is, there is no shortage of ideas. It's time to get busy. Sure, we could nitpick, but no tax reform will ever be perfect. And the American people expect reform, GOP. You'd better give it to them.
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