The last time major reform of the tax code was accomplished, the discipline was established by President Ronald Reagan who was a strong supporter of tax reform, but who also warned that if it increased the deficit, he would veto the bill.
That discipline is missing today. The Republicans in Congress, at a time when both our economy is growing and our federal debt is growing, have decided to borrow $1.5 trillion and use it to cut taxes, the bulk of which will go to corporations and high income individuals.
In addition to bloating the federal deficit, they have included provisions in their tax reform bills that are grossly unfair.
For example, almost since the beginning of the income tax, the payment of state and local taxes has been able to be deducted from the federal tax return. The reason is simple. If you are required to pay state and local taxes, you don’t have access to that income. The Republican tax bills are now disallowing most of the state and local tax deductions. That means taxpayers will be paying a tax on a tax they pay. That is an absurd result. An agricultural state like North Dakota is heavily penalized by disallowing the state and local tax deduction.
Under the two current tax plans passed by the House and Senate, corporations will get about two thirds of the tax cuts and individuals will get one third. But much of the tax cuts that go to individuals will go to high income individuals. Moreover, the corporate tax cuts will be permanent, but the individual tax cuts will expire resulting in higher taxes for individuals in the coming years.
Their plans also would disallow the deduction for excess medical costs. And they would prohibit deductions for interest paid on college loans. And those are just a few of the many unfair changes that are used to pay for their corporate tax cuts.
In short, these bills, cobbled together quickly only by Republicans are unfair and unwise.
By the way, the legislation also contains other unrelated issues that they could never get enacted on their own. For example, they would modify the law which could allow preachers to endorse political candidates from the pulpit. And, it would open for oil and gas drilling the Arctic National Wildlife Refuge, one of the most pristine areas on the planet.
This is not the way to do tax reform. There is a much better way. In 1986, I was part of the effort to reform the tax code in Congress. We closed loopholes and brought the top individual tax rate down to 28 percent. And we did that without increasing the federal debt.
Today, the Republicans in Congress are in a frenzy to move this partisan legislation in the next two weeks. That short circuits a fair process and short changes the American people.
Here’s how to do tax reform the right way:
First, don’t borrow money to give tax cuts at a time when our country is saddled with a staggering $20 trillion debt. Make those who pay too little to pay up, and use the savings to cut taxes for those who are paying too much.
Second, make it bipartisan legislation and get the best ideas from both political parties.
And third, don’t lard a tax bill with other outrageous provisions that could not get enacted in any other way.
Tax reform, done right, might also help improve how the American people view the Congress. Doing something serious in the right way could be habit forming for a Congress that is now suffering from near record low poll results.