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The GOP Tax Plan Is in Trouble. Many People Are Saying This.
As conservative political reporter Robert Novak once declared, “God put the Republican Party on earth to cut taxes. If they don’t do that, they have no useful function.” Now imagine a new Republican president and Republican Congress — both of whom ran on cutting taxes — not being able to pass a tax cut. It might seem unimaginable. If so, stretch your imagination. Border adjustment is a key element of the GOP tax reform plan. It serves several purposes: raises a trillion bucks, makes it harder for companies to escape US taxes by shifting operations overseas, and gives a protectionist president a perceived win on trade that may help avoid harsher trade measures.
But border adjustment is in deep trouble. Which means tax reform may also be in trouble. Imagine that.
From the WSJ’s Richard Rubin: “Big retailers are lobbying aggressively against the concept, which would tax imports and exempt exports. Senate Republicans have expressed views ranging from skepticism to hostility. Even some House Ways and Means Republicans are wary. With Democrats sidelined, just three GOP senators could kill the House tax plan; already, more than that oppose border adjustment.”
And from Politico:
Trump’s chief strategist Steve Bannon likes it, but the president’s chief economic adviser, Gary Cohn, is opposed, according to people who have talked with them. Trump himself has acknowledged he doesn’t think much of the proposal, though he has said he will keep an open mind. Many Republican senators say privately they detest the concept, fretting that it will hurt their in-state retailers like Walmart, which is headquartered in Cotton’s state of Arkansas. Senate Finance Chairman Orrin Hatch (R-Utah), sources said, has warned Trump and Ryan that border adjustment won’t likely have the support needed to clear the Senate. … A source familiar with the White House’s thinking said it’s unlikely Trump would try to push through the border-adjustment tax if key administration officials and senators are still divided over it. Senior House Republican sources who back him say the House has been working on tax reform for years and has already considered numerous financing mechanisms. But all of them have set off firestorms within various industries. A border adjustment tax, they say, is the best option on a limited menu. Without it, they contend, tax reform will die. Ryan has made the same pitch to his colleagues privately, according to one source close with the speaker who heard it.
Indeed, the lack of a Plan B right now might be the best thing tax reform has going for it. As Rubin notes: “Republicans haven’t developed palatable alternatives that avoid huge budget deficits or prevent the corporate tax base from fleeing abroad.”
But is coming up with a Plan B really so hard? In a summer analysis of the House Plan, the Tax Foundation found it would slash federal revenue by $2.4 trillion over the first decade on a static basis, or by $191 billion over the first decade if dynamically scored. Without border adjustment, that’s a $3.5 trillion loss, $1.2 trillion dynamic. So maybe … don’t cut taxes as deeply and don’t depend so much on tax reform to boost long-term economic growth. Maybe cut the corporate rate to 25% rather than 20%. Maybe leave personal income tax rates alone (saving $2 trillion) and use some of that savings to expand the child and earned income tax credits. Maybe leave estate and gift taxes as is. There are other ideas, I am sure. Like this:
The new proposal retains a 15 percent corporate income tax, gives taxable shareholders a credit for corporate taxes paid, imposes a 15 percent tax on interest income of non-profits and retirement plans, and addresses stock price volatility and shifts between private and publicly-traded status. The reform encourages domestic investment and sharply reduces incentives for corporate inversions. It is approximately revenue neutral and makes the tax system more progressive.
Really seems to tick all the boxes. Doesn’t bust the budget. Doesn’t include a new border adjustment mechanism. Substantially relieves incentives to shift reported income and investments overseas and incentives for companies to establish residence outside of the United States. Makes the tax code growthier and more competitive. So maybe combine this with more targeted middle-class relief.
Published in Economics
I would really like to see an inversion to how we treat interest in the US. We have a massive lack of savings in the US and an over abundance of debt. I would like to see interest income to be non-taxable and interest payments (including mortgage) non-deductible.
So what? Why do you care if your neighbor George has only ten bucks in savings? What business is it of yours? And why should the US government try to force him to have a savings account at all?
I’m for a 20% flat tax with a $24,000 deductible. Period. And everything you make, capital gains, payroll, interest, etc., is income. After you subtract the 24 grand, you pay 20% on whatever is left. One 1040EZ for everyone.
Your Savings account is nobody’s business but yours.
I don’t care about a tax cut. I want the tax reform. It is way too complicated so the legislative process gets snared by the lawyers and accountants and we get nowhere. Talk of tax cuts and their effects is the diversion.
Bingo!
Oh a consensus . Must be.
Oh my god, I agree with Steve Bannon on something. How do I wash my mind out with soap?
James I have to be straight with you. WSJ has been anti-Trump since the day he announced, and now they are fully committed to the Hard Fake News side of the Business. WSJ hasn’t required a Second Source for any story since November. That used to be The Rule Never To Be Broken with them.
On top of that, the #DNCLeaks proved that while the MSM was the television arm, Politico was fully the Internet Propaganda arm of the DNC. Every one of their stories requires a DNC signature before they post it.
So if you are depending on those two “sources” to back up your post, you’re wasting everyone’s time.
Obamacare is the biggest tax, especially for those of us who are self-employed.
Let’s cut that first.
I think my monthly health insurance rate in a few weeks is to be 4 to 10 what it was pre-Obamacare or more than my annual real estate taxes, and my house is twice the size of those Silicon Valley millionaire homes.
Obamacare is a tax on those who tired to do things the honest and right way by insuring themselves.
Taxpayers pay to fund welfare programs.
A lack of savings just creates higher taxes and higher debt for others not to mention less spending on other things.
The lower income people have not paid any income taxes in decades, so what’s the point in discussing it? I have the $24k deductible in there merely to shut up the left. In my opinion, having been a lead developer on a Payroll program, and a Purchasing program that included Canada, a VAT would merely be another complicated tax on the people, and it would found another class of lobbyists, working to get “their” manufacturers the best breaks. The Democrats would turn it into a monstrosity equal in complexity to our income tax, just like Canada has done.
You can adjust the $24k deduction, and you can adjust the 20% flat tax, any way up or down that you see fit. My point is that income is income (payroll, interest, capital gains, whatever) and should all be taxed the same way, as simply as possible, so we can do away with 90% of the IRS and return the savings to our Treasury.
Finally, as to your “not enough revenue” comment – take a rich person making a nice round $974,000 per year. Subtract the $24k deductible and he pays 20% on $950,000, or $190,000. That is 19.5% tax. Flat. These days, with all the deductions in our taxes, that same rich guy is probably paying far less than 19.5%. There’s your revenue difference right there.
Why should the US government try to force him to own a place to live and thus need a mortgage loan? Why should the US government try to force him to do anything? There must be revenue for the government to do those things the government should properly be doing. Why do we make it complicated? Oh, we have a large number of people involved in non-productive pursuits that might need to find something productive to do if the revenue system is simple. Just observe that much effort is expended on automation in order to eliminate productive jobs (this is not a complaint, just a fact of which I approve) but little, other than talk, is done to clear the tax mess created by politicians, lawyers,accountants, economists and lobbyists. And in the process of securing their positions, they ruin very useful and productive fields like healthcare and education. It amazes me at times to observe how smart we think we are. I see no reason for anyone to ever see Trump’s tax returns and I doubt seriously that he has ever overtly and intentionally schemed to commit tax evasion.
Are you still accepting that the payroll tax (FICA) is not part of our income tax? Many, maybe most, low income people pay this tax.
“We’ll also reform our tax code to help middle-income families and American businesses grow and thrive. Tax reform is one of the best opportunities to really impact our economy. So we’re doing a massive tax plan. It’s coming along really well. It will be submitted in the not-too-distant future, and it will be not only good and simpler; it will be — you’re talking about big numbers of savings. And we’re talking also middle income and very much for business. And the business is for middle income because you can employ a lot of people. So we hope you’re going to do that.
We’re going to provide tax relief for families. We’re going to simplify very greatly the tax code — it’s too complicated. We’re going to bring down the number of alternatives, and I think it’s going to be just a much, much simpler tax code. In fact, H&R Block probably won’t be too happy — that’s one business that might not be happy with what we’re doing. Other than H&R Block, I think people are going to love it.
We’re going to lower the rates very, very substantially for virtually everybody in every category, including personal and business.”
DJT February 15. 2017
Do you have a revolver? Chamber a round, put the business end against your palate, pull trigger.
@arioironstar,
I am hoping this is meant in jest. However in any case because it can be construed badly I feel this is in violation of the CoC. I haven’t flagged it, but maybe it should be.
I would argue just the opposite. If you reform it in parts, you can divide and conquer. If you try to do it all at once, every army of defenders will be against you, including some that you didn’t know existed.
When the allies fought back against the Nazis, they didn’t try to fight on all fronts at once. On the other hand, doing so might have saved them the hard work of figuring out what they were trying to accomplish, where the enemy was weakest, and where the forces could best be deployed. So I suppose doing it on all fronts at once had its attractions.
Nope we then become devided. The President can lead on a simple idea. Divide it up and Congress takes over, it’s no longer a simple idea based on principle, it’s fallen into the swamp called tax reform, deep, thick, sticky, stinky mud. Don’t believe that Congress is in favor of simplification. They sell change every year. They must be herded in one direction no options. Most aren’t on our side.
OK, so no tax reform. Maybe it’s best. We can use the energy to fight corporate welfare instead, starting with NPR, solyndra-type subsidies, windmills, ag subsidies, etc. That’s more important for our country’s future than reshuffling deck chairs on the Titanic anyway.
Tax revolution. toss the code and start from scratch. the tax code is the mother load of crony capitalism, sludge, and dead weight. My point is a Mancur Olsen point, It is easier to start from scratch than to reform an institution. We should all know this in the gut. Trump gives us an opportunity to do so and we should not throw it away.
I know that in my own situation, a revolutionary tax code re-write would have substantial impact. If the tax code were changed overnight to eliminate the distortions that have accreted over the years, I could not change my financial arrangements quickly enough to avoid substantial harm. My financial decisions have been based on the tax code as it has evolved. I think there are a couple of hundred million others in households just like mine. So, it is not going to happen overnight (and shouldn’t).
The border adjustment it is in deep trouble and ought to be. Read John Mauldin’s 19 Feb “Thoughts from the Frontline.” In it, he describes the enormous adjustments that would result domestically and in the international economy, and the horrific consequences.
It’s kind of a slog for a layman like me to read through it. But, he makes a very compelling case. I think he is very evenhanded and analytical, which is refreshing – but the picture he paints ought to make everyone think twice.
Mauldin: “I just want to say that it is really, really, really, really important that we get it right this time. The cost of screwing this up will be far greater than you can possibly imagine. Conservatives may not have another shot for a very long time.”