The last time the US tax code was revised UU., President Reagan made law the historic bipartisan legislation. Many of the reforms achieved in 1986 have been expelled or undermined through various adjustments with tax rates, credits, exemptions and other perceptions created by Congress and pressure groups. Clearly, the tax system plans another refinement of 100,000 miles. But instead of bringing it to the store for a thorough and careful inspection, Republicans in Washington are competing to meet a political deadline to approve something, anything, they can call tax "reform".
In many respects, the effort resembles Congress's unsuccessful attempts to repeal and replace Obamacare earlier this year. Both times they could not agree on an ideologically cohesive plan, and instead built a Frankenstein monster of incongruous political proposals that were more aimed at winning the votes of several individual members of the House and the Senate, and less on the production of a better health system. 19659002] President Trump made it clear he wants to enact tax legislation for Christmas, and Republican Party lawmakers want an important legislative achievement to present to voters for the mid-term elections of 2018. The House pbaded its version on January 16. November, and the Senate has activated afterburners to vote on its bill later this week.
Senators try to reach the goal before the Joint Tax Committee of Congress can issue its non-partisan badysis of the effect of the fiscal plan on the economy. The Wall Street Journal reported on Tuesday that the JCT will badume that the Federal Reserve will raise interest rates in response to the tax cuts proposed by the plan because unemployment is very low. That could reduce the promised economic effects of the bill.
In contrast, two years before the Tax Reform Act of 1986, the Treasury Department investigated how different tax policies affected equity, economic distortion, and complexity. In the months leading up to the vote, the Congress held numerous hearings on different aspects of the tax reform.
The current need for speed of Congress has not left him enough time to restore the balance of the tax plan. Although the details continue to change during the last-minute negotiations, the proposals have two fundamental flaws.
First, they reduce the corporate tax rate from 35 to 20 percent to the central axis, leaving everything else, including individual tax rates, to fit around that. That distorts the economy and the politics of the package.
Republicans argue that a corporate tax cut will unleash a flood of capital investment that will boost economic growth, hiring and wages. However, US companies UU They already enjoy historically high profit margins and have a lot of cash. In addition, most economists agree that the cost of investment depends more on interest rates than on tax rates.
The focus on corporate taxes has made it difficult for mathematics to work for the benefit of middle clbad taxpayers. That creates a political problem for the GOP that tries to sell it to the public.
Second, it is forecast that the tax cuts will increase the federal budget deficit by $ 1.4 trillion over the next 10 years, at a time when the country is already flooded. in red ink. Republicans like to proclaim the party of fiscal responsibility, but without spending cuts to compensate for the loss of revenue (and no, the tax cuts will not "pay for themselves" with additional economic growth) or corresponding closures In the tax loopholes to make the tax revenue plan neutral, the Republican Party is being fiscally irresponsible.
Republicans should take the time to develop a tax package that is flatter, broader, and simpler than the current disaster we have, and one that is fiscally sound.