You hear it all the time these days: Republicans should just move on to tax reform. It will be so much easier than overhauling the law on healthcare.
No, it won’t. Indeed, if the GOP thinks replacing the Affordable Care Act has been a nightmare, just wait until they try to reform the tax code.
Tax reform, at least the version that raises the same amount of revenue as the current code, will create far more losers than a health bill. It will divide the business lobby, produce a storm of criticism from charities and home builders, and set off a firestorm among political ideologues. It will sow confusion and uncertainty among ordinary taxpayers. And it will split congressional coalitions, not just by party, but by geography.
{mosads}Think of it this way: Nearly two-thirds of Americans get insurance through their employers, Medicare, or the military, and they would be largely immune from changes to the ACA. By contrast, nearly every American and all businesses could be touched by a major tax bill. Even those who currently pay no federal income tax could be at risk, depending on how reform is structured.
Here’s the thing about revenue-neutral tax reform: For every winner, there is a loser. And if President Trump and congressional Republicans try to pass a tax bill on a purely partisan basis, as they did with their efforts to replace the ACA, they will be blamed for all those provisions that take away someone’s favored tax break. In the 2018 elections and beyond, Democrats will eat them alive for these votes. And they know it.
To be clear, I am talking about revenue-neutral tax reform, where someone’s tax cut is offset by someone else’s tax increase. It would be much easier for Trump and the GOP to agree on a simple tax cut. After all, tax cuts are what Republicans do best.
They’d face only two constraints. First, because of budget rules, a tax cut would have to be temporary, expiring after 10 years. Second, some conservative deficit hawks would likely put an upper bound on the feeding frenzy, insisting on some limits to how much such a bill would add to the national debt. A Trump-like tax cut, which the Tax Policy Center estimates could top $8 trillion over a decade, isn’t in the cards. But if Trump and the GOP want to cut taxes by a few trillion dollars, they probably could do so, if not in 2017 then in 2018.
But tax reform, which House Speaker Paul Ryan (R-Wis.) continues to insist upon, is another matter entirely. Don’t think it is hard? Just follow the trajectory of reform so far. At each step of the way, lawmakers are fuzzing up issues rather than clarifying them. Instead of reaching consensus on important details, they increasingly are falling back on vague promises and platitudes. For example, during his presidential campaign, Trump proposed at least three different tax plans. While each left out key details, they also included many important specifics.
We knew, for example, which individual and business tax rates he favored, and what would happen to important elements of the tax code, such as the standard deduction and personal exemption. By April, the president’s tax agenda had been reduced to a one-page outline that was far less specific. Similarly, in June 2016, Ryan and the House Republican leadership proposed a relatively detailed blueprint for ambitious tax reform. Over the past year, House Republicans made little progress on that plan and in some key areas regressed.
On July 27, the Big Six, a group of senior Hill Republicans and top Trump administration economic advisers, released a much-anticipated statement on tax reform. It included no details in a summary of its goals, which took all of one paragraph. For example, when it came to the all-important issue of tax rates, the best they could come up with is, “The goal is a plan that reduces tax rates as much as possible.”
The only real news was that the group decided to drop a major element of the original House leadership bill, the so-called “border adjustment tax.” That levy would have raised roughly $1 trillion over 10 years and was one of the few revenue raisers that lawmakers were willing to publicly identify. Now that it is gone, how will Trump and Hill Republicans pay for those rate cuts?
Finally, there is the White House problem. A tax reform that creates winners and losers cannot pass Congress without the enthusiastic support of a strong president who can act as head lobbyist and cheerleader-in-chief. At least at the moment, the administration does not even seem to know what it wants out of tax reform, and the president seems far too weak to lead the charge.
So, no, tax reform won’t be easier than healthcare.
Howard Gleckman is a senior fellow at the Tax Policy Center, a joint venture between the Urban Institute and the Brookings Institution. He edits the center’s TaxVox fiscal policy blog and Daily Deduction newsletter. He is a former Washington correspondent for BusinessWeek, where he was a 2003 National Magazine Award finalist.
The views expressed by contributors are their own and are not the views of The Hill.