Tax reform promises will end with a whimper
WASHINGTON >> Needing a victory to validate their majorities, congressional Republicans have chosen not to emulate Shakespeare’s Henry V before Agincourt. He advocated stiffening the sinews, summoning up the blood and lending the eye a terrible aspect. The Republicans would rather define victory down.
What began with a bang of promises of comprehensive tax reform will end with a whimper: The only large change will be to the national debt. Consider a small proposal — repeal of the estate tax. It will be paid by an estimated 5,500 people dying this year, raising about $20 billion — a pittance in the $3.88 trillion budget. Repeal’s significance would be philosophic rather than economic.
In 1975, Phillies pitcher Tug McGraw explained what he would do with his $75,000 salary: “Ninety percent I’ll spend on good times, women and Irish whiskey. The other 10 percent I’ll probably waste.” If you work hard, make a pile, then choose to squander it on dissipations, go ahead, it’s a free country. But try to pass the pile to progeny, grasping government will intervene. Ending the estate tax would extinguish the government’s delusion that it has the duty and skill to prevent the intergenerational transmission of family advantages (of which, money matters much less than transfers of social capital — habits and aptitudes, which government cannot redistribute).
Desperate to propitiate impatient constituents, Republicans say this is no time (actually, there never is a time) to fret about the national debt, which was $9 trillion a decade ago and passed $20 trillion two months ago, having increased 22 percentage points under the Republican president who preceded the present one. House Speaker Paul Ryan says do not worry, “We finally have a president who is willing to actually balance the budget.” Ryan underestimates the president, who has promised to eliminate not just the budget deficit but the national debt in just eight years, without touching entitlements.
In the ninth year of an unusually long expansion, and with the economy near full employment (ignore the dismal workforce participation rate), the budget deficit for the past fiscal year was $666 billion, up $80 billion from the previous year. To partially recoup revenue lost from reduced rates, Republicans reportedly flinched (Florida Rep. Matt Gaetz says his fellow Republicans were “asked to vote for a budget that nobody believes in so that we have a chance to vote for a tax bill that nobody’s read”) from a “border adjustment tax” on imports ($1 trillion in a decade) and now have gone wobbly about completely ending the deductibility of state and local taxes ($1.3 trillion). Republicans might still be contemplating steep reductions in the amounts that individuals can put into tax-deferred 401(k) retirement accounts. This will displease the approximately 32 percent of workers who have 401(k)s, and will worsen the inadequate savings rate of a nation where defined-benefit pension plans are now mostly luxuries for government workers and where almost a majority of people approaching retirement have nothing saved for it. The current median Social Security payment is about $16,000 a year.
Republicans should have heeded Dwight Eisenhower’s axiom: “If a problem cannot be solved, enlarge it.” They should have made the case for large reforms that annoy democratically — almost everyone, simultaneously — but for a large purpose. The aim should have been a revenue system that stops subordinating economic efficiency to social engineering and rent-seeking, thereby maximizing the probability of economic growth sufficient to fund the entitlement state. Such a bold aim requires a commensurately bold argument — for a consumption tax or a carbon tax or a zero corporate tax rate or anything for which public-spirited people might stiffen their sinews and summon up their blood.