The late columnist Robert Novak had a favorite saying about the GOP: “The only reason God created Republicans was to cut taxes.” And the 1980s were a perfect world for doing so.
President Reagan’s across-the-board cuts on individual income tax rates in 1981 were followed by sweeping tax reform in 1986 that reduced the top rate to 28 percent while wiping out special tax breaks and broadening the tax base. The top rate had been 70 percent when Reagan was first elected.
Republicans had fulfilled their destiny, but they didn’t do it on their own. Two Democrats, Senator Bill Bradley and Rep. Dick Gephardt, were first out of the gate with a plan for tax reform. Reagan’s reaction was to order up a reform scheme that left special interests out in the cold. A compromise was thrashed out. The House passed tax reform 292-136, the Senate 74-23. It was bipartisan nirvana.
Today, bipartisanship is a fleeting memory. Enacting tax reform in 2017 will be difficult and politically painful, if not impossible. Even if all goes well for President Trump and Republicans, it won’t pass until August at the earliest. That’s too long to wait. The animal spirits unleashed by Trump’s election can’t sustain strong economic growth forever.
What’s needed is a simplified plan of few parts that creates jobs and attracts Democratic allies. The economists who drafted the plan Trump campaigned on last year, Larry Kudlow and Steve Moore, have proposed one.
It would cut the tax rate on corporate income from 35 percent to 20 percent. To repatriate overseas profits, it would tax them at 10 percent. (The House Republican plan would set that rate at 8.5 percent.) And it would include hundreds of billions in spending for infrastructure, the top goal of labor unions and a boon to Democratic support. That’s all. It’s that simple.
The rest of tax reform—the harder parts—would be left for later. It’s unfortunate, but cutting the top rate on individual income would have to wait. The Trump campaign plan would slash it to 33 percent from 39.6 percent. But Democrats strongly oppose rate cuts, especially reductions in the top rate. They want to raise the rates on personal income.
Besides, the wealthiest Americans aren’t clamoring for a rate cut at the moment. They’re doing fine, as they did throughout the high-tax Obama years. Forbes magazine found there are 25 more billionaires in the United States today (565 in all) than last year. The rich can wait.
The 20 percent border adjustment tax on imports, which is part of the House Republican tax plan, would not be included. It’s a poison pill that divides the coalition for tax reform. It’s also a distraction that focuses on what many people—retailers, for instance—don’t like.
Nor would tax preferences for various narrow interests be targeted for elimination. That effort is bound to generate an angry class of tax-reform losers, as it did in 1986. The plan would not be deficit neutral, though repatriation should reap $200 billion or so in revenue. Democrats didn’t worry about the deficit in 2009 when they passed an $800 billion stimulus. They won’t now, once they’re on board.
That the plan has only three parts is important. A lesson from the failure of repeal-and-replace-Obamacare was that it was too complicated. “When people don’t understand something,” Moore says, “they’re not for it.” Not only average folks, but plenty of House members and TV talking heads didn’t have a clue.
The scaled-down tax plan doesn’t have a problem like that. But is it a jobs bill? I think so. Cuts in the corporate tax rate are associated with wage hikes. A cut this big is likely to create a surge in jobs. And the estimated $200 billion in repatriated profits will add significantly to the jobs buildup. Republicans would be smart to call it a “jobs bill” or a “massive jobs bill” rather than talk up a “corporate tax cut” and “repatriation” combo.
As critical as it is for the bill to be bipartisan, I’m unsure whether splurging on infrastructure is enough to lure Democrats. Sweeteners may be required, along the lines suggested by financial consultant David Smick, author of the bestselling new book The Great Equalizer: How Main Street Capitalism Can Create an Economy for Everyone.
To “fashion a true bipartisan grand bargain that includes lower corporate tax rates, repatriation, infrastructure spending, and other items on the GOP agenda,” he would add “items Democrats highly value, including worker mobility vouchers and a modest, phased-in hike in the minimum wage that protects small business solvency.”
Smick proposed these concessions in the context of full-blown tax reform. But if it takes enticements like these to win over Democrats, they should be embraced. Next to a huge reduction in the business tax rate, they are small potatoes. Small business, by the way, would be included in the rate cut.
There’s one problem that conservatives, supply-siders especially, will raise. If cuts in income tax rates are skipped now, they may never happen. That’s the risk. And it’s a real one. But it’s worth taking at this crucial moment.
It’s not just the economy that urgently needs to be juiced up. Trump and Republicans do too. Recovery from the repeal-and-replace disaster won’t occur, politically anyway, until it’s pushed aside by a highly visible success.
The confirmation of Neil Gorsuch to the Supreme Court will help. But a bipartisan tax measure will do a whole lot more.
Robert Novak had another saying. “The only way to look at politicians is down,” he said. The politicians he looked up to had one thing in common. They cut taxes.
Fred Barnes is executive editor of The Weekly Standard.
