Ryan plan not the kind of tax reform we need
The purpose of tax reform is to raise revenue more efficiently — with fewer loopholes and special breaks that distort economic incentives and necessitate higher marginal rates. In discussing tax reform since President Donald Trump's election, Republicans have promised to do just that: pass a bill with lower rates for both individuals and businesses, applied to an income "base" broadened by the elimination of deductions and credits.
If you listen very closely to what GOP leaders have been saying lately, however, especially in remarks last week by House Speaker Paul Ryan, RWis., and Vice President Mike Pence, what you'll hear is the carefully chosen words of people planning something that's not real tax reform at all.
Speaking to the National Association of Manufacturers Tuesday, Ryan pledged to take on "defenders of the status quo" — and then proceeded to defend many of the status quo's worst aspects. He pledged to get rid of "special-interest carve-outs" except for those that "make the most sense" — such as the deduction for mortgage interest. Actually, this distortion of the real estate market is one of the tax code's least sensible features, but it is politically sacrosanct due to the power of the real estate lobby. The only major individual tax break Ryan seemed to leave on the chopping block was the deduction for state and local taxes, which disproportionately favors states that send Democrats to Congress. Any GOP tax plan would eliminate the estate tax, Ryan insisted — thus entrenching the concentration of wealth in the United States.
Somewhat more plausibly, Ryan advocated a new corporate tax system, with a lower top rate, so as to discourage shifting production abroad. However, he gave few specifics and seemed to soft-pedal the means of paying for the plan he and his House colleagues had previously offered — a socalled "border adjustment" that would raise tens of billions of dollars per year, essentially by taxing the U.S. trade deficit.