Our Editorial: GOP must get tax reform done
Republicans are marching past their embarrassing failure to repeal and replace Obamacare and will next step into another policy thicket: reforming the nation’s complex and uncompetitive tax code. They can’t afford to let intra-party squabbling also derail this promise to the American people.
President Donald Trump kicked off the tax reform push, which will unfold in Congress over the next several months, in Springfield, Missouri, Wednesday. Few details are available for what the actual plan will contain.
But it is expected to hew closely to the outline the administration released shortly after taking office. It’s also encouraging that planners intend to dust off some elements of former Congressman Dave Camp’s comprehensive reform proposal.
The goal of the Midland Republican’s efforts was to make the plan simpler and fairer, while encouraging vigorous economic growth.
Among the ideas from Trump is removing most itemized deductions, except for mortgage interest and charitable contributions, in exchange for lower income tax rates. The plan replaces the current seven brackets with just three, 10, 25 and 35 percent.
But already there is pushback on dropping the current 39.6 percent top rate from Republicans who worry about being accused of favoring the wealthy. Cutting deductions without lowering rates across the board runs counter to the goal of economic stimulus, and could have a very negative impact on charities.
There is also some rumbling about capping the mortgage deduction for top earners.
The personal deduction would be doubled, which would be a boon for middle-class families. And additional credits would be built in for child care expenses.
On the business side, the 35 percent corporate rate was once slated to be cut to 15 percent, making it one of the lowest in the industrial world and providing a powerful tool to lure back those corporations that have moved their headquarters overseas in search of tax relief.
Discussion is now centered on lowering the rate to 20 or 22 percent, which is better than the status quo but well short of a big play to boost the economy.
It is essential that Congress come up with a fair method of taxing the overseas earnings of American companies, and repatriating the hundreds of billions of dollars that are sitting in foreign accounts to avoid onerous U.S. taxes. Finding the right formula could provide the Treasury with a revenue jolt.
Trump’s top aides on tax reform, Treasury Secretary Steve Mnuchin and Chief Economic Adviser David Cohn, are said to be considering taxing 401(k) contributions up front to ease the impact of the proposal on on the deficit. That’s a terrible idea that would discourage savings, which is never sound policy.
Details will emerge as they are formed over the next several weeks. Reforming the tax code without adding greatly to the deficit and in a way that stimulates the economy is a difficult challenge.
It can’t be done if Republicans repeat their health care reform debacle and splinter into factions that won’t compromise.
It will take the GOP majority to unite behind one plan. Most Democrats have already signed a pledge not to vote for any plan that provides tax relief to the wealthy. But reform that doesn’t encourage the rich to invest their money in job creating enterprises is worthless.
So Republicans will have to do it on their own. Their own political interest demands action.
They can’t go into the 2018 election with no policy wins to boast of in their first year of total control of Washington.