No easy math: Tax reform still = trade-offs
WASHINGTON — One of the biggest stumbling blocks to President Donald Trump’s failed efforts at passing a health care bill turned out to be his own words — promises of insurance for everyone, lower costs and better care — that can’t all be achieved at the same time.
For a president who likes to make gold-plated policy sales pitches, Trump’s next attempt at a major legislative achievement poses an even stiffer challenge. Overhauling the tax system, perhaps more so than the health care system, cannot be done without creating winners and losers.
And Trump dismisses the notion that he needs to sell the public on making trade-offs, often promising that changing laws will be “beautiful” and “so easy,” and that compromises made in the past were the result of “stupid politicians” who forged bad deals.
Yet rewriting the tax laws depends on a strict diet of tough choices.
Want to lower tax rates for everyone without killing popular deductions or driving up the deficit? Good luck.
Want to raisemoneywith a consumption tax without hiking prices at Wal-Mart? Nice try.
“Trade-offs are the essence of tax reform,” said Douglas Holtz-Eakin, repeating an axiom of the trade.
Holtz-Eakin served as chief economist in the George W. Bush administration, led the nonpartisan Congressional Budget Office and advised John McCain’s presidential campaign on domestic and economic policy.
Changing almost any element of the tax code requires some to pay more and others to pay less or else it requires passing the pain to future generations in the form of deficits. The inevitability of trade-offs is one of the main reasons the issue bedevils lawmakers from both parties and why the code has not been rewritten for more than three decades.
“The winners are always skeptical that they actually won, so they’re sort of modestly supportive. The losers are sure they’ve lost, so they’re very loud,” said Steve Rosenthal, a senior fellow at the Tax Policy Center, a Washingtonbased think tank.
Trump’s campaign rhetoric almost exclusively stressed lowering rates, offering little to no detail on howto pay for those cuts or streamline the Talmudiclike set of regulations that govern what Americans must turn over to the IRS.
As president, he has yet to outline his goals much beyond saying at a recent rally, “I want to cut the hell out of taxes.”
Trump has left almost everything else up in the air.
Congressional Republicans have floated a number of ideas that would lower tax rates for corporations and individuals, eliminate most deductions and require companies to pay taxes on imports. Analysts have cautioned thatmany of the planswouldworsen the budget deficit and that they allwould favor higher earners, which could fracture Trump’s political coalition.
Holtz-Eakin knows the political consequences of tough choices. He said he still suffers post-traumatic stress from the 2008 campaign in which McCain proposed eliminating the deduction on employersponsored health insurance, one of the most popular pieces of the tax code.
Barack Obama ran a relentless and effective advertisement showing an unraveling ball of yarn with the warning thatMcCain’s plan could “leave you hanging by a thread” with higher taxes and no health insurance.
Ronald Reagan, the last president to overhaul the tax system, had nearly everything going for him politically when he tackled the task in the mid-1980s. Hewon49 of 50states inhis re-election, which prominently featured tax reform.
Although Democrats controlled the House of Representatives, the powerful leader of the tax-writing committee, Dan Rostenkowski of Illinois, wanted to cut a deal and became one of its chief salesmen.
The economy was growing strongly as it recovered from the recession of the early 1980s, and Reagan’s approval ratings were headed toward their peak of 60 percent.
“There was a certain amount of trust people had for him. … You kind of gave him the benefit of the doubt,” said James Miller, who served as Reagan’s budget director.
“There were a lot trade-offs in that bill,” said.
Although Reagan presented himself as the avatar of smaller government, “the bill actually made the number of pages in the federal register larger, not smaller.”
Passing the 1986 tax reform law still took more than two years, and it required Reagan to sell the public on his notion of fairness, which included lowering the top rates, raising the bottom rates and eliminating many tax shelters.
“What’s missing of he when compared to the experience of 30 years ago is a presidential or aWhiteHouse or a Treasury Department proposal,” said Jeffrey Birnbaum, who co-wrote a book on that tax overhaul.
He is now a public relations consultant whose clients include a group seeking lower rates.
“We don’t knowwhat the president favors or doesn’t,” Birnbaum said. “His support for a specific set of principles is essential, inmy view, to powering the effort.”
Absent Trump’s leadership, congressional Republicans are divided over basic issues such as whether to create new taxes on consumption or emphasize simplicity and the ability to file on a postcard.
“We’re not there yet,” White House Press Secretary Sean Spicer said recently, when asked whether Trumpwould insist that his tax plan pay for itself. “As the plan develops and there’s a cost put on it, that’s going to be a decision that gets looked at, as well as what are the economicgrowth and job-creation aspects to it,” Spicer said.
Spicer outlined three broad goals: tax simplification, lower rates and job growth.
Veterans of the process say Trump does not need to emphasize the detailed trade-offs to prevail. He does need to make the case that the overall benefits will outweigh the pain, and that Americans will benefit broadly fromwhichever approach he chooses.
A survey released last week by the nonpartisan Pew Research Center revealed that a large majority — 62 percent of Americans — say they are bothered a lot that corporationsdonot pay their fair share of taxes, and 60 percent are bothered a lot that wealthy people do not pay a fair share.