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Tax Reform Begins

Tax Reform Begins
AP Photo/J. Scott Applewhite

Dear Reader —

House Republicans unveiled their long-awaited tax plan Thursday, to a mixture of harsh criticism and cautious praise. The plan, which partly offsets trillions of dollars in tax cuts by eliminating trillions more in loopholes, is estimated to cost about $1.5 trillion over the next decade — roughly the amount required by the budget adopted by both chambers last week. That gives the bill — or some version of it — a shot, however long, at making it through the reconciliation process.

That assumes, of course, that the Senate will be satisfied with the broad outlines of the plan, and that the party leadership can successfully cajole enough members to clinch a simple majority of votes. And with trillions of dollars in pay-fors, this bill presents myriad opportunities for lobbyists, special interests, and business groups (to say nothing of constituents) to push back. What is more, Republicans hope to accomplish all of this by Christmas; the House bill is scheduled for markup Monday.

The central feature of the plan is a permanent tax cut for corporations from 35 to 20 percent. It also includes provisions intended to discourage American companies from keeping money overseas, such as a 10 percent tax applied on “high returns” of foreign subsidiaries. Additionally, the bill proposes a new tax rate of 25 percent (down from 39) on so-called pass-through entities, which make up 95 percent of all businesses. Finally, the bill doubles the standard deduction for individuals, while creating three new brackets (12, 25, and 35 percent) and leaving in place a top rate of 39.6 percent for those earning $1 million per year or more. Other noteworthy features include limits on the state and local tax deduction, a new cap (at $500,000 for future purchase) on the mortgage interest deduction, and the elimination of the alternative minimum tax.

The most striking thing about the bill is its focus on businesses. This is in contrast to the 1986 Tax Reform Act, which lowered individual rates considerably, e.g., from 50 to 38.5 percent for top earners, while raising taxes on corporations. This reflects a widespread view among conservative and some liberal economists that current corporate tax rates are excessively high and that reducing the overall tax burden on business will stimulate growth. But it also says something about the political trade winds.

Just a few year ago, it would have been very hard to imagine a mainstream Republican tax plan gaining much traction that did not at least attempt to lower individual rates for the highest earners. This concession may seem like weak tea to Left-leaning observers, especially when paired with corporate cuts. But, merits aside, it could also be interpreted as implicitly granting that lowering marginal rates for the wealthiest is not absolutely necessary to stimulate growth — a tenet of supply-side economics that played a key role in 1986. In this sense at least, the tax plan offers yet more evidence that populist sentiments continue to color our national politics.

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


The Democratic Party’s Civil War Is Getting Nasty. In The New Yorker, Susan B. Glasser explains why disunity could compromise the party’s hopes for 2018. 

A Prescription for GOP Victory. In our own pages, Heather R. Higgins highlights three “structural impediments” the party must overcome to achieve goals such as repealing and replacing the Affordable Care Act. 

America Is Not a ‘Center-Right Nation.’ In The New York Times Eric Levitz argues that contrary to popular belief, moving the Democratic Party Left on economic issues would not be “electoral suicide.”

On Corporate Taxes: Repatriate, But Don’t Dictate. Also in our pages, Wayne Stoltenberg applauds corporate tax cuts, but insists that efforts to control what firms do with repatriated capital are misguided.

A Bipartisan Plan to Cut Corporate Taxes. The Wall Street Journal’s William A. Galston suggests a tax proposal that could appeal to Republicans and Democrats alike.

Why Silicon Valley Loves Mining. For Investor’s Business Daily, Mark P. Mills argues that the rise of electric cars means higher demand for mineral mining as well as rising import dependencies. 

Private Health Care Would Be Less Expensive for All. Gary Wolfram explains in RealClearPolicy

Manufacturing Lies. In The Huffington Post, Robert Kuttner contends that President Trump’s policies undermine his stated goal of making American manufacturing great again.

Eliminate the State & Local Tax Deduction. In RealClearPolicy, Andrew Wilford applauds Republicans for ignoring calls to preserve the controversial tax deduction, but urges them to go one step further.

The Government’s Gender Hiring Gap. Also in RealClearPolicy, Adam Andrzejewski spotlights data showing a “striking disparity” between the number of men and women employed in top government positions. 

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