Even before the Senate failed to pass a weak health care reform bill in mid-July, congressional Republicans were rationalizing their failure: Health care wasn’t their issue, they reasoned. But tax reform—now there was something they could win with.
It sounded good, but we were skeptical. We still are.
A year ago, President Trump and Republicans on Capitol Hill spoke more about “tax reform” than “tax cuts,” but in recent weeks the president has begun to use the terms interchangeably and Republicans now more frequently talk about lowering rates than simplifying the code. The White House’s one-page tax plan, made public in April, includes both, but the president’s emphasis is now on cuts.
It’s hard to believe this administration, with its disinclination to lead and its thin Senate majority, can achieve both aims. Of the two, reforming the code seems more achievable than cutting rates—though a sizable minority of Republicans, longing as they do for another Reagan Revolution, can’t see the value in any tax measure that doesn’t include cuts.
Even Trump, though hardly a typical Republican, seems attached to the idea that the Reagan Revolution is repeatable via tax cuts. “Ronald Reagan proved that cutting taxes on American businesses helps American workers win in the world marketplace,” he declared on September 6. “When President Reagan lowered taxes, American businesses beat out our foreign competition. Our economy boomed, the middle class thrived, and median family income increased.”
Ronald Reagan’s achievement on taxes was monumental. When he took office in 1981, the top marginal personal-income tax rate was 70 percent. Eight years later, the rate had come down to 28 percent, and America had begun a period of growth like few others in modern history.
But the circumstances of 1981 do not obtain in 2017. True, the personal rate has gone up: With the expiration of the Bush tax cuts, the top rate is just shy of 40 percent. That rate could be fruitfully lowered, but it doesn’t follow that cutting income taxes again will achieve comparable results. That assumption, as Yuval Levin noted in his book The Fractured Republic, risks “taking what were solutions to specific discrete problems of the late 1970s and treating them like abstract principles instead of concrete applications of principle to particular situations.” The sluggishness of our economy has less to do with high tax rates than with overregulation and exploding costs in health care and higher education.
As a matter of practical politics, too, marginal rate cuts seem highly improbable. An esoteric budget rule in the Senate won’t allow Republicans to pass a tax cut on a bare majority unless the bill can be shown not to increase budget deficits after its first decade. That means getting a few Democrats to vote for rate cuts—a doubtful scenario, to put it nicely.
Even more important, the president has shown no capacity for leading his party to accomplish a principled goal. He gave us a painful reminder of this fact on September 6, the very day on which he praised Reagan’s tax cutting. As our Mike Warren reported, Trump’s advisers and congressional allies urged the president to insist on a long-term funding deal rather than settle for another three-month increase in the debt ceiling, clearing the legislative calendar of anything that might impede the debate over taxes. He rejected their advice—and handed Democrats all the excuse they’ll need to hold up debate on tax policy and talk about something else.
Tax reform could benefit the economy nearly as much as rate reductions, and it enjoys the kind of broad support that just might make presidential leadership unnecessary. The administration still hasn’t issued a detailed plan, but the priorities it’s articulated appear sound.
Eliminating most of the tax code’s byzantine array of deductions, exemptions, and loopholes would undo some of the perverse incentives of the current system. Repealing the 3.8 percent tax on investment income imposed by the Affordable Care Act would get rid of a pointlessly punitive tax. Eliminating the estate tax, too, is worth trying: Democrats contend that only a few extremely wealthy individuals pay the tax, but that’s because many less-than-extremely-wealthy individuals would rather sell off or break up their estates than pay an exorbitant tax on the transfer of property from one generation to another. Lowering the corporate tax rate—among the highest in the world—is a long-overdue reform that will spur job creation and investment, the tendentious counterarguments of progressives notwithstanding.
In 2017, with an ideologically rudderless president in the White House, Republicans would be wiser to aim for the feasible than to pretend it’s 1981.
