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Here’s How the GOP Can Work with Democrats on Pro-Growth Tax Reform
Congressional Democrats say they’ll work with the GOP on tax reform. Well, provided the GOP agrees to a few simple conditions. From the WSJ:
Senate Democrats outlined their conditions for working with the Trump administration and congressional Republicans on tax policy, and their principles didn’t seem to leave much room for common ground. In a letter dated Tuesday, Democrats argued against tax cuts for the top 1% of households, declared it crucial that Republicans not use the fast-track procedures known as reconciliation and said they wouldn’t back deficit-financed tax cuts.
Let me reframe this a bit. Could the GOP fashion pro-growth tax reform that meets these three conditions? I think so.
For instance: My AEI colleague Alan Viard and the Urban Institute’s Eric Toder have authored a tax plan that would lower the corporate tax rate to 15% and offset the revenue loss with higher shareholder taxes. It wouldn’t cut taxes for the 1% — personal labor income rates would be untouched, while shareholders’ capital gains and dividends would be taxed at ordinary income tax rates — and pays for the taxes it does cut. (See the table below)
From Viard and Toder: “Our proposal would increase the tax burden on the top 1 percent of the income distribution and reduce taxes as a share of income by roughly equal amounts for all other income groups.”
The result would be fiscally sound tax reform that actually makes the tax code more progressive. It would also “create incentives for real investment and reported taxable income to shift back to the United States.” So it would be pro-growth.
Optimal reform? No. ( I would like some direct middle-class tax relief and action on expensing.)
But an improvement? Yes. The only outstanding issue is whether Republicans would need to use reconciliation to pass it. Well, I guess that depends on how acceptable such a plan would be to Democrats. But if it meets the distributional and deficit issues, shouldn’t it meet this final demand? What am I missing here.
And as far as the plan not cutting high-end personal income tax rates, apparently GOP “supply-siders” no longer believe that is a particularly growthy thing to do.
Published in Economics
If these criteria were met, Dems would still claim that it was a sellout to ‘the rich’. I think that Pelosi and Schumer would need to sign in blood to the details with the understanding that if they don’t deliver, then it’s gonna be a pure growth plan instead rammed thru.
The deference to Senate Democrats on appointments and all else needs to end unless and until there is a different tone. When their leaders morph into Bob Michel or Ev Dirksen we can talk bipartisanship.
Will that aversion to deficit financing apply to the upcoming infrastructure bill?
Of course, the Dems won’t simply retarget their argument against the corporate rate cut, right?
If the GOP follows up the ACA repeal betrayal with a Brookings-Urban Institute nothingburger tax plan the Democrats will win 240 seats next year.
“…..apparently GOP ‘supply-siders’ no longer believe that is a particularly growth thing to do.”
Really? Where do you get that from?
I respectfully suggest this picture might better capture this proposal:
I’m guessing Larry Kudlow. And it’s reasonable. Concentrating on a halfway decent (or at least slightly less insane) corporate tax, with full expensing, full participation of small business, territorial, and god you could hope no deductions for anything, seems like the most buck for the bang. Plus you get buy-in from leftwards economists with any sense (possibly a small crowd, but I know of at least one). The corporate tax looks ugly economically from any angle you choose to look at it. Why not tackle that one first?
So basically the Dems are not really willing to work with the GOP because the 1% pay a large bulk of income taxes, removing reconciliation means they are going to filibuster it, and the GOP won’t cut spending to avoid the deficits. No deal and walk away.
Because balancing the corporate tax rate cut with a tax hike on shareholders is just a recipe for Scandi corporate socialism. We’ve already caved on the investment tax swindle in the ACA.
This is not a cut in taxation of capital investment, but a reformulation out of a James Burnham nightmare.
The Democratic leadership is not Richard Gephardt and Leon Panetta anymore. They are hard leftists. Sure, we should try to pick off some centrist Dems. Nothing coming through Schumer moves this country in the right direction.
And who really thinks pushing Trump to cooperate with Schumer isn’t an insane move.
Ummm. No.
I agree, there is nobody sane on that side of the isle to make a deal with.
The tax code is already the most “progressive” on the planet. What has that gotten us?
I don’t want “progressive” taxes. I want fair taxes, with fairness meaning that everyone contributes. Progressive taxes have given the welfare class incentives to remain on welfare – this is not a good thing.
So, thanks but no thanks James.
Republicans need Republicans not Democrats, but Democrat support can be welcomed and Democrat voters can be wooed like other voters with an imaginative comprehensive tax reform that moves the economy. Republicans cannot work with the Democrat party. They are, to be kind, wrong on everything and do not care about substance, unintended consequences and to the extent they believe in anything they believe in big intrusive government and they like to sell tax loopholes after creating big tax burdens. . The purpose of tax reform is it raise revenue with the least damage and distortion to the economy. However, revenue paid for by taxing savings and discouraging investment or causing distortions in order to not have to borrow more is self defeating and has the whole debt burden business wrong. The problem is spending and spending must be reduced, but borrowing to fund short term deficits is not as harmful as long term tax burdens on savings, investment and work. Debt is market conforming. The economy conforms to taxes as well but it matters how and what we tax. Government spending is mostly consumption so consumption should bear the burden of raising more revenue to replace revenue lost through economic stimulating cuts in taxes on investment, savings and work. Or live with deficits and encourage savings through our tax reform.
Why is a more progressive tax policy a selling point? It’s even in the abstract; right by the nonstarters about taxing retirement income and nonprofits.
The corporate tax rate could be simply reformed by removing subsidies for individual industries and adjusting down the overall corporate tax by the same amount. Revenue neutral and not adding to the deficit are covered and it has the added benefit of being consistent with conservative principles. Let the Democrats vote against something broadly popular for once.
Well, repealing Obamacare was popular right through November, and then the entire Democratic Party, their MSM adjunct and one-third of the GOP kneecapped that opposition while conservatives fought bravely against themselves and surrendered the argument to the left.
Democrats vote against popular and for unpopular policies all the time.
That’s why they win when they win and draw when they lose.
They vote against enforcing immigration laws, they vote in favor of abortions in the 35th week, they vote for pension and benefit packages for their public service employee wing that no private sector employees enjoy, they vote for racial quotas in hiring/promotion/admission which are broadly hated, they vote against cleaning parks, libraries and public transit of homeless degenerates.
You could go on all day.
If the GOP is cowed by 1% rhetoric then they are kaput. The Dems are so confident they are showing their playbook before the game begins. Corporate tax cuts for the 1% versus working families; tax relieve for corporations that took your jobs overseas!
A game-changing stonking tax cut to jumpstart this economy might not poll well in October.
Will the GOP cave to a nothingburger AEI/UI/Brookings thinkery reform which is revenue neutral and scored by the CBO as if it were an increase in pre-K funding or solar panel production?
The flat tax is the political twin of immigration enforcement in potential appeal, and the GOP is just as scared of the former as the latter.
Tough summer for a conservative and a Mets fan.
James, this is one of your worst posts ever!
The economy is not doing well at all but your post assumes that the Washington Establishment’s cherished status quo must be maintained at all costs.
The average family is being squeezed by the Big Government Leviathan into the poorhouse by high government regulation and taxes. Growth and productivity are close to zero while inflation for average people ( not that false number used by the Fed) is way, way up, but you could care less. Food, Housing, Insurance and local utility costs are way up. Check out John Williams Shadow Government Statistics site – it shows consumer inflation at around 10 % over the last several years. Anecdotal evidence alone gives more credence to his estimates than to any by the Fed or the Bureau of Labor Stats.
Many of the major retail and fast food chains are close to bankruptcy because the average family has been squeezed out of disposable income and no longer have any money to buy the major chains’ products. But to you, that ain’t a problem.
Your analysis is a based on the totally discredited idea of a static economy, where one tax cut over here must be balanced out by an equal tax raise over there and the idea that high taxes do not dampen growth at all. It’s such nonsense. Get a clue!
Don’t count on it.
He believes their lies. It’s sooo cute.
keep that photo, it’ll come in handy again real soon.
No tax reform that obtains Democrat support is worth the effort.