Tax Cuts or Tax Reform: Which Will Republicans Choose?

 

Steve Mnuchin.

Imagine a joint op-ed by Austan Goolsbee, Paul Krugman, Christina Romer, and Larry Summers telling President Hillary Clinton she was bungling a key piece of her economic agenda. Would be a big attention getter.

Now the GOP equivalent might be Team Supply Side: Steve Forbes, Larry Kudlow, Arthur Laffer, and Steve Moore. All highly influential economic thinkers on the right, it’s an antsy group. Last week the New York Times published a buzzy op-ed by the foursome gently scolding the Trump White House for a) prioritizing health reform over tax reform and b) losing focus on the tax issue by scrapping the campaign plan and starting over.

And a Wall Street Street Journal piece on the current state of tax reform probably only exacerbates their concerns. FKL&M want the White House to narrowly focus on business tax cuts: Slash rates, allow full expensing of new investment, put a low tax on repatriation of foreign investment, and then move on.

But according to the WSJ, Treasury Secretary Steven Mnuchin said that while the administration will “very soon” release a plan, it will dramatically overhaul both personal and business taxes. It’s hard not to see Mnuchin’s comments as rebuttal. Oh, and Mnuchin added that the plan “will pay for itself” by boosting economic growth.

Well, at least the supply siders will like the addendum. But it should be noted that revenue neutrality through growth and dynamic scoring would be pretty tough. As the Tax Foundation’s Alan Cole explained on Twitter, “This implies an added 0.9% to growth each year for a decade.” Models suggest that is either very hard or impossible.

Cole makes another point: Any tax-cut only plan, such as the sort favored by FKL&M, avoids a worthwhile fight for deeply reforming the tax code, such as the House GOP has been pushing. Why fight that fight? As Cole rightly argues in a new National Review piece, budget deficits matter, and tax reform would allow Republicans to structure the tax code so that it raises revenue efficiently and fairly to pay for the tax cuts.

Cole: “If Republicans want to pass a more lasting reform, they should include some revenue-raising provisions in the bill. Tax reform is worth it also because Republicans have promised many times to reduce the complexity of the tax code for individuals, curb corporate-tax avoidance, make the code fairer for all, and limit carve-outs for special interests.”

Not that tax reform is easy, especially when the deep planning and advocacy for reform failed to happen during the campaign.  So how might this play out? This from Goldman Sachs:

We recently wrote that our view continues to be that tax legislation is likely to become law, but that it is more likely to be a tax cut with limited elements of reform, namely a 25% corporate rate with provisions allowing for low-tax repatriation of foreign profits, incremental base broadening, and no border adjusted tax. However, the timing does appear to be slipping once again; if the legislative focus remains on health legislation through May, a vote on tax reform at the committee level might not occur in the House until July, which could make final enactment of tax legislation before year-end challenging. At this point, we expect that enactment is more likely in Q1 2018 than Q4 2017.

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  1. Trinity Waters Member
    Trinity Waters
    @

    I don’t understand the binary choice in the title.  Most Republicans will choose whatever fills their campaign coffers, so the question is moot, anyway.

    • #1
  2. drlorentz Member
    drlorentz
    @drlorentz

    Trinity Waters (View Comment):
    I don’t understand the binary choice in the title. Most Republicans will choose whatever fills their campaign coffers, so the question is moot, anyway.

    Tax Cuts or Tax Reform Increases Marketed as Tax Reform: Which Will Republicans Choose?

    There, fixed it. Read my lips.

    • #2
  3. I Walton Member
    I Walton
    @IWalton

    If Trump lets Congress put it together it will be some cuts and some deals, no reform and nobody but those who cut deals will understand any of it.  If the President puts forth a simple proposal built on defendable simplicity he’ll get it.   But he wont.  He hasn’t figured out that leading means telling Congress what it must do and making it simple enough to sell in sound bites to the people.  Maybe we’ll get cut in corporate tax and reform later.  That is simple on the surface  the most we could hope for now and would be good.

    • #3
  4. BD1 Member
    BD1
    @

    Listen to Larry Kudlow, not someone who voted for Hillary Clinton and is pushing her agenda.

    • #4
  5. Fake John/Jane Galt Coolidge
    Fake John/Jane Galt
    @FakeJohnJaneGalt

    Does it matter?  Some judge will stop it some how because it is racist or some such tripe.

    • #5
  6. Z in MT Member
    Z in MT
    @ZinMT

    It was Ryan that was pushing the border adjustment tax for some reason. Ryan is always too clever for his own good.

    Here is my preferred plan:

    Make the US tax code completely territorial, only money made inside the US is taxed.

    Have a flat tax on capital, interest, and business or corporate income of 20%. Income for corporations must be based on GAAP, no second set of books for taxes vs. income reports for the SEC. Allowed business expenses will largely remain the same as now.

    Have a flat tax of 15% on wage income over a threshold set by congress.  (FICA taxes and SS will remain the same).

    Allow the deduction of inflation from cost basis for capital gains and interest income. For corporations dividend payments are deductible.

    No other deductions, or interest payments. No credits. Earned income tax credit will be eliminated, but transferred to welfare program.

     

     

    • #6
  7. The Reticulator Member
    The Reticulator
    @TheReticulator

    James Pethokoukis: Cole: “If Republicans want to pass a more lasting reform, they should include some revenue-raising provisions in the bill. Tax reform is worth it also because Republicans have promised many times to reduce the complexity of the tax code for individuals, curb corporate-tax avoidance, make the code fairer for all, and limit carve-outs for special interests.”

    No. Better to have no tax reform and no tax cuts than to have revenue enhancement.  We already have too much debt.

    • #7
  8. Duane Oyen Member
    Duane Oyen
    @DuaneOyen

    There is a fundamental problem with 0ur side.  We keep talking about middle class tax cuts as though the middle class paid income taxes; you can only cut taxes if someone pays the taxes right now.  The SS boys are also certainly correct that the biggest need is for business tax reform, but to do so is politically tin-eared.

    Until politicians are prepared to be truthful- tell people that there is no free lunch, and that everything they demand must be paid for, this is a completely losing poker hand- the economy is lousy and the people hate you as well.

     

    • #8
  9. Fake John/Jane Galt Coolidge
    Fake John/Jane Galt
    @FakeJohnJaneGalt

    Duane Oyen (View Comment):
    There is a fundamental problem with 0ur side. We keep talking about middle class tax cuts as though the middle class paid income taxes; you can only cut taxes if someone pays the taxes right now. The SS boys are also certainly correct that the biggest need is for business tax reform, but to do so is politically tin-eared.

    Until politicians are prepared to be truthful- tell people that there is no free lunch, and that everything they demand must be paid for, this is a completely losing poker hand- the economy is lousy and the people hate you as well.

    That is because they do not want middle class tax cuts.  They want middle and low class to get a new entitlement disguised as at tax cut.

    • #9
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