Republicans looking for the perfect tax reform plan, the one that will make America more competitive while providing relief for middle-class families and do both without adding to the deficit, won’t find it in the proposal offered this week by congressional leaders and President Donald Trump. The GOP bill falls short of perfection.
But it is the best reform package that’s made it to the table in 30 years, and likely the best that will ever be presented again. In the quest for the perfect, GOP lawmakers should not let the very good slip through their fingers.
The fractured Republican caucus should unite behind the plan and post their long awaited first major victory of the Trump era.
What’s offered is the most comprehensive rewrite of the tax code in three decades. It would permanently lower the corporate tax rate to 20 percent from the current world leading 35 percent. The uncompetitive corporate tax rate helps explain why so many domestic companies have moved their headquarters overseas, and why economic growth coming out of the Great Recession has been so tepid.
It would also rationalize the taxing of small businesses, many of whom now pay rates as high as 50 percent on their earnings.
Tax brackets would shrink to four from the current six, with millions of lower earning Americans falling to a zero tax rate. The truly wealthy, those earning more than $1 million a year, would continue to pay a 39.6 rate.
And while Democrats are decrying this as a package designed for corporations and the rich, that is not true. Middle-class families should see the child care credit expand to $1,600 per child from $1,000, the standard deduction doubled to roughly $12,000 for individuals and $24,000 for couples and a new family credit of $300 for each parent and nonchild dependent.
It’s a substantial break for those who aren’t rich, and that’s confirmed by the Washington Post fact checkers, who gave four Pinocchios to Democratic claims the plan raised the burden on the middle class while benefiting the wealthy.
There are some losers, including those who live in states that have permitted high state and local taxes. Deductions for those levies would go away.
But if passed, the reforms should put more money into family budgets, while encouraging businesses to invest in job creation.
Many of the measures have received bipartisan support in the past. But if this package passes, it will almost certainly have to do so on a straight Republican vote. Democrats are too committed to their resistance movement to give Trump a victory on a key campaign promise.
That means the GOP has to hang on to nearly every vote from its caucus, particularly in the Senate, where its edge is a mere two votes. The inability to unite Republicans is what has frustrated health insurance reform.
Failing to enact tax cuts after failing to repeal and replace Obamacare would ruin GOP hopes in the 2018 mid-term elections. That’s the political implication. The impact on the economy could be much greater.
The stock market has been riding high and businesses have been expanding in part on the anticipation of favorable tax reform. If Congress doesn’t deliver, it could send the economy into a tailspin.
This package was crafted to appeal to as broad a swath of lawmakers as possible. Deficit hawks may chafe, rightfully, at its impact on the nationally debt. And it certainly could be improved in coming weeks by a healthy dose of spending restraint.
But overall, it represents a giant step toward a rational tax code that improves America’s competitiveness, boosts the well-being of families and provides a powerful incentive for investment and job creation.