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Like many readers, I was looking forward to celebrating a very special occasion Wednesday.
It’s been nearly a year since the 2016 elections, which gave Republicans control of both chambers of Congress and the White House. Among the priorities the GOP was thereby in a position to pursue was tax reform. Since Donald Trump’s inauguration, in January, the nation — and the markets — have anticipated that they would do just that. In August, Trump declared it was time for his administration to turn its focus to this priority. In a speech at the Loren Cook Company in Springfield, Mo., he called on Congress to send him a bill that would close loopholes, lower the burden on middle-class households and fuel economic growth by slashing the corporate tax rate.
Wednesday, Nov. 1, was supposed to be the day that leaders in the House released their plan. Those of us who live in Houston, thankfully, have had the World Series to distract us from the mounting suspense, not to mention several interesting developments in Robert Mueller’s ongoing investigation.
But Tuesday, Rep. Kevin Brady, a Republican from The Woodlands and chairman of the House Ways and Means Committee, announced that his committee had decided to postpone releasing the text of the bill until Thursday.
As it stands, then, the details of the forthcoming Republican tax reform proposal remain nebulous, which is troubling given its potential scope. Trump has promised a “historic” reform of the tax code, and some of the ideas that have been floated could directly impact millions of American households, for good or ill.
The reform would center on the idea of cutting the corporate tax rate, which currently tops out at 39 percent, the highest rate in the industrialized world. Beyond that, Republicans would
like to reduce the number of income tax brackets from seven to four, raise the standard deductions and expand the child tax credit.
But last week, for example, Republicans were apparently considering a proposal to cap pre-tax 401(k) contributions at $2,400 a year, compared to the current limit of $18,000. And Wednesday, as the Ways and Means Committee was supposedly preparing to unveil its ideas, Trump volunteered one of his own.
“Wouldn’t it be great to Repeal the very unfair and unpopular Individual Mandate in ObamaCare and use those savings for further Tax Cuts for the Middle Class,” asked the president, rhetorically, on Twitter.
He added: “The House and Senate should consider ASAP as the process of final approval moves along.”
A few suggestions
According to reports, Trump has also proposed naming the legislation, which he hopes to sign by the end of the year, “The Cut Cut Cut Act.” This, too, has been met with some pushback from his fellow Republicans.
Since the president and Congressional leaders are still hoping to pass a tax reform bill — perhaps even the one they’ve been working on — I thought I might offer a few suggestions, to that end.
First, I think it would be best if none of the provisions included in this reform is nonsensical. Repealing Obamacare’s individual mandate, for example, would be popular with many of the law’s conservative critics, and would arguably constitute “a tax cut” for many Americans. According to the IRS, 6.5 million people paid a penalty in 2016 for failing to purchase health insurance for most or all of 2015.
Still, the time to repeal the individual mandate was during Congress’s ill-fated effort to tackle health care reform over the summer. And even if it is possible to do so in the context of a tax reform bill, which is debatable, it’s not clear what Trump means when he says that doing so would result in “savings” that could be used by the federal government to pay for “further Tax Cuts for the Middle Class.” Readers may understand what he’s talking about, and if so, I’d encourage them to write me and explain; until then we’ll live with the mystery.
Second, and relatedly, Republicans would ideally avoid the inclusion of any provisions with overtly adverse implications for the middle-class Americans this reform is supposedly intended to help, like the 401(k) thing. We should be encouraging Americans to save more for retirement, not penalizing the subset who are trying to do so, for spurious reasons.
And although this idea has probably already been scuttled, a question arises when we consider that it was proposed in the first place: Why? In October, the Council of Economic Advisors published an analysis concluding — ”very conservatively” — that cutting the federal corporate tax rate from 35 percent to 20 percent would increase the average household income by $4,000 each year. I was skeptical of that, frankly. In theory, cutting the tax burden on employers could enable them to pay higher wages, but there’s reason to doubt they would do that. We’re seeing wage stagnation in a context where GDP growth is robust, and liquidity has been ample for almost a decade.
No reason to lower cap
But, in any case, if cutting the corporate tax rate was a surefire way to fuel wage growth, those cuts would result in higher income tax revenues. That being the case, there would be no reason to pre-emptively lower the cap on pre-tax contributions to retirement savings accounts, which is hardly a middle-class tax cut.
And so that brings me to a final suggestion, for any Congressional Republicans reading this: The provisions of the proposal you come up with are surely worth explaining, and defending, to the American public. You may not believe that it’s possible to persuade voters to embrace your ideas on the merits, but that’s no reason not to give it a try.