A Taxing Situation

Having failed in their efforts to repeal and replace Obamacare, President Donald Trump and the congressional Republican majorities are moving on with plans to revamp America’s tax system. So far, at least, it doesn’t look any more promising than the previous crusade.
Which is a shame, as America’s tax system is badly in need of revamping, and the traditional Republican remedies are probably best. The system should be simplified, flattened, rid of deductions that serve only well-lobbied special interests, include more deductions that encourage investment in the broader economy, and that highest-in-the-world corporate tax rate especially needs lowering. If commensurate budget cuts could somehow be effected, so the already disastrous national debt didn’t explode, it would probably be helpful to lower every other tax in sight.
A Republican president and Republican majorities in Congress should be able to get it done, and even persuade a few centrist Democrats from well-heeled districts with big corporate donors to go along, but at this particular moment it seems a daunting task. Any attempt at serious tax reform is difficult, as all sorts of well-lobbied special interests immediately get involved, and there are lots of class resentments and economic theories to be considered, so that last time it happened was way back when President Ronald Reagan unified the Republican minorities in Congress and got more than a few centrist Democrats in well-heeled districts to go along.
This time around the Republican president is Trump, the leaders of the congressional Republican majorities inspire little more confidence, the Congressional Democrats are more unified in opposition to anything they might come up with, and the economic and political circumstances aren’t quite so ripe.
When Reagan offered his 461-page tax plan to Congress he knew every minute detail of it, and had spent the previous decades making a persuasive case to America for the sophisticated free market theories that inspired it, and with his experience as a past president of the Screen Actors Guild and two-term governor of California he knew the more down-and-dirty practical arguments to use with reluctant Republicans or potentially friendly centrist Democrats from well-heeled districts. The tax rate on the uppermost bracket was 70 percent at the time, which was steep even by the standards of the moribund European economies, cutting that by rate to 28 percent freed a lot of capital for pent-up investment in the private sector, and after the stagflation that had started in Nixon administration and lasted through the Ford and Carter administrations, most of the the country and enough Democrats were willing to roll the dice on those sophisticated free market economic theories.
When Trump unveiled his nine-page outline of how to revamp America’s tax system during a typically rambling speech in Indiana, we couldn’t shake a vague suspicion he didn’t understand a word of it. We had a hard time making sense of it ourselves, as did everyone else we’ve read, but everyone seems to agree with Trump’s opening unscripted that it does involve those “massive tax cuts” that Democrats are always accusing Republicans of yearning for.
During the speech Trump insisted the vaguely worded tax plan wouldn’t benefit himself, and he added his catchphrase “believe me,” which will surely endear him to his many lower-bracket fans, but until he releases his tax returns you’ll have to take him at his word, and by now most Americans don’t. Reagan had released his tax returns and put his relatively modest fortune into a blind trust, so he didn’t have that rhetorical problem. He could also make a case that taking a 70 percent cut from anybody who got lucky or smart enough to make it to that rarefied tax bracket was unfair, whereas Trump is stuck with a rate that went up and down and up again through the Clinton and Bush and Obama administrations and lands in a mid-30s range that strikes the more average earner as about fair. The relatively insignificant cuts proposed won’t unleash a relatively significant amount of capital into the private sector, too, and with Trump constantly boasting about how high the stock market indices and how low the unemployment rates are the populace probably isn’t in any mood for tax cuts for the rich at the moment.
Those Reagan tax cuts brought a promised doubling of federal revenue collections, but without any commensurate budget restraint the deficits and debt swelled. The broad economic expansion nonetheless continued long enough to get his vice president elected for a third term, and although a brief and relatively mild recession got President Bill Clinton he fiddled so slightly with the tax system that all that capital wound up investing in a technological revolution that has propelled the American through the desultory administrations of George W. Bush and Barack Obama and even into the era of Trump. That soak-the-rich mantra the Democrats are still loudly chanting is as stupid as ever, and we discern a few very good ideas in that nine-page outline about how to revamp the tax system, so we’ll hope for the best.
The highest corporate tax rate in the world is an obvious problem that every last Republican and at least a few centrist Democrats with corporate donors should want to solve, and there’s also a strong case to be made against estate taxes, but there was also a strong argument to be made for repealing and replacing Obamacare. Trump and the congressional leadership weren’t quite coordinated on how far to slash the corporate tax rate, both were failing to acknowledge that the actual corporate tax rate is much lower, given all the deductions their lobbyists have obtained, most of which do have a invigorating affect on the broader economy, and we can’t shake a suspicion that Trump is about to find out that tax reform is even harder than health care.
The Republican majorities in Congress are as always all hepped up for tax reform, but they have diverse districts and different donors and individual viewpoints to consider, and no matter the ranch hands Republicans are always harder to round up in a pen than Democrats. There are still a few debt-conscious Republicans left, perhaps including the Speaker of the House, some Republicans from less well-heeled districts that went big for Trump and his promises of tax hikes on the rich, and even some free market hold-outs who now worry that the tax rates are not far off from optimal. A zero percent tax rate yields zero revenues, but so does a 100 percent tax rate, and both liberal and conservative have always agreed there’s some point in between at which tax rates start to result in lower revenue, which many of our states have tried to ignore, but with Trump boasting about the great economy he’s unlikely to convince anyone outside the hated Republican establishment that his rich buddies and cabinet members need any sort of tax break.
If it we’re up to us we’d concentrate on the arguments for a lower corporate tax rate, which are so compelling they have even persuaded all of the Europeans and the Asians, state the moral case that after someone has spent a long and fruitful life paying exorbitant taxes he shouldn’t be taxed a final for dying, and not antagonize any of those lower-bracketed and class-resenting die-hard Democrats and heartfelt Trump supporters with any noticeable tax cuts for the rich, and if we were Reagan we could probably get it done. Trump isn’t at all a Reagan-esque sort of ranch hand you might have seen on the silver screen, neither are that Senate Majority Leader or House Speaker, and at this point we can’t see any of them winning over any sort of Democrat. We’ll still hope for the best, but we won’t be making any bets, and will anxiously wait to see where the Wall Street money goes.

— Bud Norman

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