Tax reform storms

tax, taxes, debt, deficitsBy Steve Brawner

This column was going to argue that Hurricane Harvey federal recovery aid should be funded through spending cuts elsewhere or through a special tax rather than increased deficit spending. Then a Houston-based Facebook friend pleaded for a cease-fire to all Harvey-related political talk, particularly by those of us sitting high and dry.

Point taken. Harvey is the only story that matters right now, but this week that story is about rescue, relief and resilience.

So we’ll fill this space on the opinion page with something else until a discussion about how to fund the recovery is more appropriate.

President Trump’s tax speech

President Trump Wednesday kicked off his legislative effort to reform the nation’s tax laws. In a speech at Springfield, Missouri, he outlined his goals broadly: a simpler, more competitive tax code; lower taxes for businesses and the middle class; and bringing corporate profits back from overseas.

Republicans know they must pass something big, considering voters have given them control over everything. When Democrats were similarly situated in 2009-10, they passed Obamacare. But Republicans have already whiffed on that.

Tax reform would seem easier. Republicans are more comfortable talking about that subject. With health care, it’s fun to criticize the other side’s ideas but hard to come up with your own. Tax cuts and simplifying the code have been unifying Republican principles since President Reagan came to power. If Republicans can’t agree on those, what can they agree on?

Harder than health care?

But tax reform could be as difficult as health care. To cut someone’s taxes without adding to the deficit, you must raise someone else’s – unless you cut spending, and we’re not having that conversation right now.

Of course, lawmakers won’t say they’re raising anyone’s taxes. They’ll say they’re cleaning up the tax code by closing loopholes.

But one man’s “loophole” is another man’s “deduction,” and the beneficiaries will have armies of lobbyists and campaign funders fighting to keep them. (Which is how the loopholes probably were created in the first place.)

There’s a myth that American democracy reflects the majority’s will. Actually, an engaged and committed (and well-funded) minority often will overcome a disinterested majority. It doesn’t matter much what millions of Americans think generally about the tax code. What matters is who cares about which parts, and what they are willing to do about it.

Will they cut taxes but not spending?

So here’s the danger ahead. Congress and the president must do something after stalling on health care. Tax “reform” is difficult and bound to make some people unhappy. So they’ll just settle for tax cuts, which everyone likes.

Which would be fine, if they were accompanied by spending cuts. But remember, we’re not really having that conversation right now. If lawmakers cut taxes but not spending, the growing $20 trillion national debt ($61,000 for every American) will grow even faster. The ones hurt most by this are future generations, but they don’t vote or give campaign donations. For the politicians focused on the next election, problems solved.

The Arkansas connections

A couple of other interesting tidbits. One is that Rep. Steve Womack, who represents the 3rd District in Northwest Arkansas, may be the next House Budget Committee chairman because the current chair is leaving Congress. In that position, he would have increased influence over all this.

The other is that state legislators are having the same discussion in Little Rock. A task force is considering changing Arkansas’ tax code to make it simpler and more competitive and to lower rates.

As with Congress, the only way to make the math work is to close loopholes, which means state lawmakers will face the same situation as Congress, except for one detail. Arkansas state government has a mechanism in place, the Revenue Stabilization Act, that discourages deficit spending. Congress has no such mechanism.

That’s where we stand. Lawmakers in Washington and Little Rock agree the code is too complicated. But changing it at both levels will be hard, because the complications were put there on purpose.

So expect stormy weather as always, politically speaking.

Related: State tax cuts: First answer “How?” and then “How much?”

Tax cuts and rosy scenarios.

© 2017 by Steve Brawner Communications, Inc.

2 thoughts on “Tax reform storms

  1. Here’s a not so bold prediction: The fat cats (who own our legislators) will get a lot fatter. The rest of us will get thinner. Loopholes for the rich will multiply.

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