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Tax Cuts for Whom?

Tax Cuts for Whom?
AP Photo/Jacquelyn Martin

Dear Reader —

In a major victory for Speaker Ryan and Chairman Brady, the House passed a sweeping tax bill Thursday, setting in motion the negotiations that Republicans hope will culminate in a comprehensive tax reform bill on President Trump’s desk before the New Year. For that to happen, the Senate must first pass its own tax bill, which advanced out of committee Thursday and will be considered by the full Senate after Thanksgiving. Then both chambers must agree on and pass a bill that reconciles the two versions.

Besides restoring the adoption tax credit, the House bill is more or less the same as the one unveiled two weeks ago. It reduces the number of income brackets from seven to four; doubles the standard deduction; cuts corporate rates to 20 percent; creates a new 25 percent rate for pass-through entities; and limits or eliminates a number of popular deductions, including the state and local tax deduction and the mortgage interest deduction. The Senate bill differs in several respects, most notably by delaying the corporate tax cut until 2019, including a sunset provision for individual tax cuts to expire in 2025, and repealing the Affordable Care Act’s individual mandate. Senate Republicans have also backed off changes to the mortgage interest deduction. 

On substance, it may prove difficult to reconcile these two bills, but not impossible. The political stumbling blocks, meanwhile, will be familiar — finding a way to please enough moderates and hard-liners to reach a simple majority. But if the House and Senate do manage to compromise and pass a tax bill, what will it look like?

Political pressures and budgetary restrictions will likely produce a non-revenue-neutral bill that contains significant corporate rate cuts and relatively small individual cuts — with sunset provisions for some or all of these — while preserving many of the popular deductions. In other words, the GOP may wind up passing a modest, business-friendly tax cut with most of the populist and reformist elements watered down or removed. That may or may not be good policy. But is it good politics?

There is no question the Republicans must do something. With midterms fast approaching, dismal congressional approval ratings, and growing fears of primary challengers, the stakes could hardly be higher. However, it is worth noting that among Republican voters who overwhelmingly approve of Trump, only 35 percent think that corporate taxes should be lowered, according to a recent Pew Research Center survey. (That’s compared to 67 percent of traditional Republican voters — a group that comprises just one third of Republicans and 13 percent of the overall public.) Moreover, 70 percent of these “Country First” conservatives believe inequality is a major political problem today. 

The upshot? If congressional Republicans pass a tax bill primarily aimed at helping corporations — whatever its broader economic implications — liberal Democrats may not be the only ones accusing them of caring more about the C-suite than the middle class. 

These are some of the many issues taken up at RealClearPolicy over the past week. Below you will find just a few highlights.

— M. Anthony Mills, editor | RealClearPolicy

***

Cutting Health Care to Pay for Tax Cuts. In Vox, Dylan Matthew and Tara Golshan contend the GOP tax plan would harm the majority of Americans in order to benefit corporations.

How to Fix the Republican Tax Plan. In The New York Times, Ross Douthat suggests what the GOP could do to improve its tax proposal.

A 10-Point Plan to Drain the Swamp. In our own pages, Fred Wertheimer and Norman Eisen outline their “government integrity compact with America.” 

The Income Inequality Obsession. In Defining Ideas, Richard A. Epstein makes the case that the emphasis on reducing inequality is misguided.

Time to Stop the War Against Imports. Also in our pages, Steven Globerman contends that the administration’s protectionist stance will not benefit American workers, but instead decrease employment opportunities and real incomes for Americans. 

Power to the Parties. In National Review, Jay Cost counters a popular narrative about party establishments.

Americans Need a Pay Raise. The Brookings Institution’s Isabel V. Sawhill and Eleanor Krause criticize a GOP plan to eliminate the estate tax. 

Government-Sponsored Monopolies Won’t Fix Procurement. In RealClearPolicy, Drew Johnson argues that a GOP proposal to reform the federal procurement process would result in a “government giveaway” to Amazon. 

The Hidden Powers of the People’s Branch. In Washington Monthly, Daniel Stid reviews a new book that highlights the “non-legislative powers” Congress can use “to check and balance the other branches” of government. 

Seattle’s Income Tax Gambit Will Likely Fail. Also in RealClearPolicy, Erica York argues that the city’s attempt to “mimic the policy choices of Chicago and Detroit” is both legally questionable and economically shortsighted.

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