Unless Changed, the Tax Bill Should Die
Since the financial crisis of 2008, the federal government has been borrowing and spending money like there’s no tomorrow. In November, I reported about the new rollover regime we just entered, in which the feds will be refinancing the debt run up during the Obama era. It didn’t occur to me at the time, but the $8.388T debt the feds will be rolling over in the four years that started on Oct. 1, 2017 is more than the debt incurred during the eight years of Obama, which was $8.096T, (that’s the Public Debt from Jan. 20, 2009 to Jan. 20, 2017). So, we must redeem the Obama era debt in half the time it took to run it up!
A single $1T deficit in fiscal 2009 during the crisis might be acceptable, even warranted, but four trillion-dollar deficits in a row are unforgiveable. Those four deficits were so large that despite lower deficits in his second term, they gave Obama an average deficit of more than $1T a year for his eight years. The Public Debt, which is the real debt, went from $6.3T to $14.4T while Obama was in office. What did we get for all that debt and all that spending?
For years after the financial crisis the federal government and the Federal Reserve took extraordinary actions. What money the feds didn’t borrow, the Fed created, “out of thin air” as they say, through QE, “quantitative easing.” The Fed is now poised for a drawdown of its $4.5T balance sheet, and has already changed ZIRP, its “zero interest-rate policy,” slowly raising its funds rate. Now, add to all this the new tax bills under consideration that will cut revenue and raise deficits and we have uncertainty. Markets don’t like uncertainty.
Having looked at the House and Senate tax bills, there’s not much to like in them. It would be better to have no new tax legislation than this. And I write that having advocated tax reform for years. But there’s no real reform in these tax bills, and they raise the deficit at the worst time, (see above). As a Republican voter, I hate to write those lines, it pains me, but in their major legislative efforts this year the GOP Congress has been disappointing. They need to fix that soon.
The tax bill needs to be revenue-neutral; the feds need to be taking in at least as much money in the first year of its implementation as in the previous year. One reason for this is that Congress doesn’t seem to be able to cut spending. Also, in certain areas, like Defense, Congress needs to spend more than it has been. For example, there’s been a lot of news lately about our military readiness; some airplanes must be cannibalized to keep other planes operational.
One unacceptable change in both the House and Senate bills is the elimination of the AMT, the Alternative Minimum Tax. The AMT was instituted to ensure that earners with hefty incomes pay at least some income tax; it was a check against the excesses of Congress in their creation of exemptions, write-offs, and preferences like the “carried interest” loophole. Guess we’re headed back to the good ole days when some high-income earners paid no income tax.
One of the more daft things about fiscal legislation is the 10-year projections that lawmakers make. They need to stop that. Congress cannot bind a future Congress. If Dems get control of everything again, they’ll be able to dash the GOP’s tax law to smithereens, and they’ll end the legislative filibuster to do it. Dems will undo the GOP’s handiwork, and taxes in America will continue to be “a disgrace to the human race.”
What Republicans should be doing is forging a tax law that is so efficient, so sane, so just, so simple, and so popular that Democrats would be afraid to tinker with it. But that’s not what the GOP Congress is doing; they’re just rejiggering the same rickety mess, looking for “pay-fors” to offset rate cuts. There’s very little creativity in these tax bills, and at a time when creativity is sorely needed.
The big disappointment with the two tax reform bills is that the more important reform is being held hostage to the less important one. That is, corporate income tax reform has been yoked to personal income tax reform. Republicans are even selling their bill as a “middle-class tax cut,” when most middle-income Americans already have very low effective rates. They’re even telling personal income taxpayers that they’ll be able to file their taxes on a postcard, (presumably so others can see what their incomes are).
Since Congress isn’t likely to come up with sensible personal income tax reform before the end of the year, they should focus on just the corporate income tax, which is the tax that economists think is the bigger drag on the economy.
Some Republican members of Congress are saying that the GOP must pass tax reform or they’re toast in next year’s midterm elections. If they pass anything like the two bills before us, the opposite may actually be the case. In “The GOP’s Tax Plan: Paving the Way to a Democratic Majority” at The Corner, Andrew Stuttaford writes: “Even if we forget about their impact on the deficit (and we shouldn’t), the Republican tax plans have been characterized by extraordinarily sloppy thinking.” He then details proposed changes to formerly untouchable tax expenditures that the GOP had best rethink.
Republicans members of Congress need to pull back from the brink. What they ought to do in the waning hours of 2017 is repeal not only ObamaCare’s individual mandate, which the Senate bill proposes, but the employer mandate as well. And that needs to go into effect on Jan. 1, 2018. They should then tell Americans that those repeals are actually tax cuts, which would be true. And then GOP members should set the corporate income tax rate to 30 percent. That also needs to go into effect on Jan. 1, 2018.
Although modest, the above changes would give GOP members of Congress a measure of credibility -- they will have delivered some tax relief and partially made good on their promise to repeal Obamacare. That credibility would allow congressional Republicans to then proclaim that they intend to make additional changes to the tax system in 2018, which might be made retroactive to Jan. 1. Among the changes should be real simplification, especially for business, so that the cost of compliance can be cut.
Considering their historic victories last November, congressional Republicans seem intent on giving a bright new meaning to “screw the pooch.” However, there’s still enough time in what remains of 2017 for them to redeem themselves and demonstrate that they do have the “right stuff” after all.
Jon N. Hall of Ultracon Opinion is a programmer/analyst from Kansas City.