On to Tax Reform
Even before the ObamaCare repeal crashed in the Senate, Team Trump was getting the ball rolling on tax reform. Let’s hope the White House and GOP leaders in Congress aren’t getting set to give us déjà vu all over again.
Even with the simple goal of making good on what they’d vowed for seven years, Republicans were never actually all on the same page on health care. Meanwhile, Democrats united readily against anything packaged as “ObamaCare repeal.” The nation will suffer if President Trump’s economic agenda falls prey to the same dynamic.
The goal for tax reform ought to be a lot more clear: Not to end every injustice or inefficiency in the tax code, but to get the US economy hitting on all cylinders again, fast.
One huge, low-hanging fruit is the hundreds of billions in corporate cash sitting offshore, awaiting some lower US rate before it’s repatriated.
Companies already paid taxes overseas on these profits. With an eye on their duty to shareholders (including pension funds and 401k investors), they won’t bring the money home if Uncle Sam insists on taxing it at full corporate rate. Some one-time reduced rate can unlock a huge windfall for the US Treasury and for investment at home.
Overall corporate-tax reform should also be pretty straightforward, trading lower rates for fewer loopholes: The only thing preventing it these last few years was President Barack Obama’s insistence that it work out to a net tax increase.
The trick is that bringing the top US rate permanently way down, to the 15 percent envisioned by President Trump, would be scored as massively reducing government revenues — making it brutally hard to pass.
Leaders will have to either set their sights lower, on a top rate of 20 percent to 25 percent, find a way to change the congressional rules on “paying for” tax cuts — or pass a “temporary,” 10-year tax cut to get around those rules. Whatever they choose, they better line up the votes in advance.
Fixing the personal-income-tax code is the riskiest task: The big “loopholes” to be cut all involve political landmines. Attacking the deduction for home-mortgage interest means trench warfare, even if you phase it out over decades. Killing the deductibility of state and local taxes is big trouble for Republicans from states like New York — and Speaker Paul Ryan has no majority without his blue-state members.
Frankly, we don’t see how Ryan and Senate Majority Leader Mitch McConnell can pull off a full reform of the personal tax code this year. It’s a big enough challenge to find some way to lower rates for the vast number of businesses that pay under the personal code.
But boosting business activity on all levels is the “must” here. Team Trump’s quiet-butrelentless work on deregulation has given the economy a decent boost, but it needs a big bang to really start roaring and creating jobs in massive numbers.
“Jobs, jobs, jobs” was Trump promise No. 1, and it’s what America needs now. Neither the president nor Republicans in Congress can afford to let this reform drive bog down.