Democrats seek equal­ity, GOP wants net tax cut in re­forms

The Washington Times Daily - - FRONT PAGE - BY DAVID SHERFINSKI

The last time Congress passed a ma­jor tax over­haul in the 1980s, all sides agreed that the goal was to stream­line the code, leav­ing the gov­ern­ment’s over­all in­come static. Now, as Congress pre­pares to try again, that con­sen­sus has dis­ap­peared.

Democrats say a ma­jor goal of re­form should be to soak the rich, try­ing to re­verse what they see as grow­ing in­come in­equal­ity. Repub­li­cans, mean­while, say re­form should be rev­enue-neu­tral or, in the best of cases, pro­duce a net tax cut for Amer­i­cans.

Left with­out Demo­cratic part­ners, Repub­li­can lead­ers are plow­ing ahead on their own, re­al­iz­ing that they need to win al­most to­tal una­nim­ity among their mem­bers to have a hope of pass­ing some­thing.

Pres­i­dent Trump says there will be some sort of an­nounce­ment about tax re­form on Wed­nes­day, and Trea­sury Sec­re­tary Steven T. Mnuchin re­cently said he is hopeful that some­thing on the sub­ject will

hap­pen this year.

“The plan will pay for it­self with growth,” Mr. Mnuchin said at a sum­mit hosted by the Institute of In­ter­na­tional Fi­nance. “This will be the most sig­nif­i­cant change to the tax code since Rea­gan.”

The Repub­li­cans are push­ing for an over­haul at a time when the gov­ern­ment’s fi­nances are strained and are likely to get much worse very quickly.

The lat­est pro­jec­tions from the Con­gres­sional Bud­get Of­fice show that un­der cur­rent law, fed­eral deficits would in­crease from about 3 per­cent of gross do­mes­tic prod­uct this year to about 10 per­cent in 2047, with spend­ing in­creases driven largely by au­to­mated fund­ing for en­ti­tle­ment pro­grams such as So­cial Se­cu­rity and Medi­care.

Ab­sent ma­jor changes, the over­all fed­eral debt held by the pub­lic, mea­sured as a per­cent­age of GDP, would grow to an “un­prece­dented” 150 per­cent by 2047 — well ahead of the peak of 106 per­cent the coun­try saw right af­ter World War II, the CBO said.

That soar­ing debt is one rea­son why Democrats want to squeeze more money out of any tax re­form plan.

“Ob­vi­ously, when Clin­ton raised taxes, it raised a lot of money. When Bush low­ered taxes, it lost a lot of money. When Obama raised some taxes, it raised a lot … just back and forth,” said Chuck Marr, di­rec­tor of fed­eral tax pol­icy at the Cen­ter on Bud­get and Pol­icy Pri­or­i­ties.

But Se­nate Ma­jor­ity Leader Mitch McCon­nell, Ken­tucky Repub­li­can, has ruled out us­ing the tax code to in­crease the gov­ern­ment’s take.

“To­day’s Demo­cratic Party, seems to me, be­lieves that tax re­form is about in­come re­dis­tri­bu­tion, how much can we get out of suc­cess­ful peo­ple in or­der to push down to those who have been less suc­cess­ful. That’s not about grow­ing the econ­omy,” he told re­porters this month, pre­view­ing the loom­ing de­bate.

“I would love to be able to do tax re­form on a bi­par­ti­san ba­sis, but I think most of the Democrats to­day be­lieve tax re­form is a tax hike,” he said.

Mr. Mnuchin said re­cently that he hopes the fi­nal tax prod­uct is bi­par­ti­san but that Repub­li­cans can al­ways use a bud­get tool that would al­low them to pass some­thing with a sim­ple ma­jor­ity in the Se­nate, mak­ing a nar­row path eas­ier.

House Ways and Means Com­mit­tee Chair­man Kevin Brady of Texas, who is spear­head­ing the Repub­li­can ef­forts in the House, met specif­i­cally with Demo­cratic com­mit­tee mem­bers be­fore the Easter re­cess about the path for­ward.

But Jef­frey Birnbaum, who chron­i­cled the push for tax re­form in the 1980s in the book “Show­down at Gucci Gulch,” said law­mak­ers to­day can’t count on the same level of bi­par­ti­san­ship.

“The prob­lem is that the Democrats ap­pear uni­fied in op­po­si­tion to low­er­ing the top in­di­vid­ual tax rate and the Repub­li­cans can’t imag­ine a tax re­form bill that doesn’t lower the top in­di­vid­ual tax rate,” said Mr. Birnbaum, pres­i­dent of BGR Pub­lic Re­la­tions.

Still, the de­mands of a grow­ing deficit will put pres­sure on Congress to find money some­where.

“It’s all in the en­ti­tle­ment pro­grams,” said Dou­glas Holtz-Eakin, who served as di­rec­tor of the CBO un­der Pres­i­dent Ge­orge W. Bush. “The boomers are ag­ing into them, and the health care costs go up even faster than that.

“There are no other num­bers in the fed­eral bud­get that mat­ter as much as those,” he said.

Maya MacGuineas, pres­i­dent of the Com­mit­tee for a Responsible Fed­eral Bud­get, agreed that the spend­ing side of the equa­tion is the most im­por­tant lever for solv­ing deficits.

But she said it’s im­por­tant for Repub­li­cans not dig the hole any deeper by try­ing to use tax re­form to eke out tax cuts.

“I think their com­mit­ment that tax re­form be rev­enue-neu­tral is in­cred­i­bly im­por­tant,” she said. “And if that trans­forms into big tax cuts that lose hun­dreds of bil­lions or even tril­lions of dol­lars, that is go­ing to ex­plode the debt even more … and make get­ting it un­der con­trol close to im­pos­si­ble in any shorter amount of time.”

Other is­sues Congress will have to tackle are Obama-era pro­grams sold as short-term eco­nomic stim­u­lus.

“But as most of us who fol­low these is­sues ar­gued at the time, much of it would be­come per­ma­nent. And that’s in fact what hap­pened,” said J.D. Foster, chief econ­o­mist at the U.S. Cham­ber of Com­merce.

Mr. Marr said that broadly speak­ing, the long-term fed­eral bud­get pic­ture is go­ing to have to ad­dress the ma­jor is­sues of an ag­ing baby boomer pop­u­la­tion, but also the fact that wages for work­ing-class Amer­i­cans have been un­der pres­sure for decades.

One pro­vi­sion ex­panded by the 2009 stim­u­lus pack­age was the Earned In­come Tax Credit, which is a ben­e­fit that ap­plies mainly to lower-wage work­ers.

Mr. Marr said tar­geted items like the tax credit — rather than tax cuts at the top — could help work­ing-class Amer­i­cans. “Giv­ing a tax cut to a bunch of hedge fund folks is not go­ing to help those peo­ple,” he said.

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