How tax reform could go wrong

The House Ways and Means Committee held a hearing to kick off Republican taxreform efforts Thursday. There are many things that could go well - or not so well now that the overhaul has begun.

The House Ways and Means Committee held a hearing to kick off Republican tax-reform efforts Thursday.

One thing Chairman Kevin Brady, R-Texas, did right was to emphasize corporate reform; achieving a more efficient system of business taxation is both more feasible politically, and more necessary economically, than redoing the individual code. Witnesses from large and small corporations testified to the myriad competitive harms of dealing with a much higher tax rate than their international counterparts.

The two big things that could go wrong, however, have hardly been ruled out. The first would be lessened progressivity in the system; and Republicans seem bent on doing at least one big thing, eliminating the estate tax, that would shift more of the government-finance burden from the top of the wealth and income scale downward, for little or no economic-growth payoff. The second potential mistake would be to slash tax rates with no offsetting revenue enhancement, worsening the federal government’s already dire long-run fiscal imbalance.

That is the cardinal sin of President Donald Trump’s onepage proposal, released last month, which also would worsen after-tax income distribution. In an interview with the Economist published May 11, Trump doubled down, breezily asserting that his unpaid-for tax cuts, mostly for the well-to-do and corporations, would “prime the pump” for greater economic growth.

The day of the Ways and Means hearing, Vice President Mike Pence promised that Trump would sign “the most consequential tax cut in American history.”

Fortunately, Republicans on Capitol Hill have not yet wavered on their view, first articulated by House Speaker Paul Ryan’s policy blueprint last year, that tax reform be “revenueneutral, ”meaning that any reductions in tax rates would have to be offset by the closing of loopholes, with no net increase in the deficit. This was the principle that governed the last successful comprehensive tax reform, under President Ronald Reagan in 1986, and adherence to it is one of the few ways this reform could retain any hope of being bipartisan like that one was. Even partyline passage in the Senate probably depends on it, given the arcana of reconciliation rules.

Any tax-reform plan adopted in the current Congress will “have to be revenue-neutral,” Senate Majority Leader Mitch McConnell, R-Ky., told Bloomberg TV on Tuesday. On CNBC on Thursday, Brady also insisted on a plan that can “break even” in the first 10 years.

Caveats apply. “Revenue-neutral” in GOP-speak still allows for a certain amount of “dynamic scoring” to take account of the estimated economic growth any legislation would supposedly generate. Still, coming as it did so soon after Trump’s comments to the Economist, GOP leaders’ restatement of the principle amounted to pushback against the president’s plan. This is one area, among many, where congressional Republicans must put distance between themselves and Trump if their legislative agenda is to be taken seriously.

PABLO MARTINEZ MONSIVAIS — THE ASSOCIATED PRESS Senate Majority Leader Mitch McConnell of Ky. pauses while meeting with reporters on Capitol Hill in Washington following a policy luncheon.