Dems are headed down the Walter Mondale road — not smart

The headline in The Hill was stark: “Senate Dems propose tax cut rollback to pay for infrastructure.”  The Democrats’ newly proposed tax hike includes an increase in the corporate tax rate, from 21 percent to 25 percent.  

Any such prospect will, of course, be vexing to the business community, since the rate was just reduced in December. After all, it’s exactly this sort of tax uncertainty that diminishes business confidence — the confidence that firms need to plan for growth and jobs in the future.  

{mosads}Indeed, even the whisper of a possible tax jump will hurt U.S. competitiveness, because American companies dread the thought that we could ever return to the bad old days — the years prior to 2018 — when America had the highest corporate tax rate among the world’s most developed economies.   

Yet, for all the success of the Tax Cuts and Jobs Act, including that 14-point cut in the corporate rate, the reality is that the U.S. still has a way to go to be maximally competitive with rival countries. 

A look at data from the Tax Foundation tells the tale. Yes, the U.S. just cut its corporate tax rate, but even so, if we include in the average of the states’ corporate tax rates, which is 4.7 percent, the overall U.S. corporate rate rises to 25.7 percent.    

In the meantime, of the 35 nations of the Organization for Economic Cooperation and Development (OECD), 12 of them today have a higher rate, and 22 have a lower rate. To put that another way, the just-enacted tax cut took us from having the highest rate in the OECD to the 13th-highest. 

That’s progress, to be sure, but it’s a long way from completely solving our competitive challenge. Moreover, other large economies — most notably, that of China, which is not an OECD member — also enjoy a lower corporate rate than the U.S.

Thus, while our competitive tax posture is much better than it was before, it still could be improved. So this is hardly a good time to talk about raising rates. Indeed, if the Democrats’ new plan were to become law, the U.S. corporate rate, including the states, would rise to 29.7 percent, which would make it the seventh-highest in the OECD — higher, for example, than that of nearby Canada.  

Of course, the Republicans who voted for the tax cuts and who currently control Congress have no intention of letting such an increase happen. Furthermore, President Trump would surely veto any rollback of his signature legislative achievement.  

In fact, it’s already evident that the GOP, eyeing the midterms, sees electoral upside in defending the tax cut.  Immediately after the Democrats unveiled their new plan, Senate Majority Leader Mitch McConnell (R-Ky.) tweeted: “Every day, we hear about how bonuses, rising wages, expanded benefits and lower taxes are giving middle-class families a lot more breathing room.” 

Then McConnell added this November-minded zinger: “But every day, we are reminded how every single Democrat voted against more money for the American people.” That’s known as drawing a line in the sand. 

In addition, White House spokeswoman Lindsay Walters told The Wall Street Journal, “Only tone-deaf Democrats could think the proper response to the booming Trump economy, higher wages and hard-working Americans keeping more of their own money is to reverse the policies that got us here.” 

Of course, the Democrats would dispute that they are tone-deaf, but in their tax-hike manifesto, which is, of course, at least a partial reversal of the tax cut, it’s hard not to hear the echoes of past tax-hike manifestos that went badly awry.   

In fact, this author remembers one of those pledges as if it was yesterday — even if it was, in fact, 34 years ago.  Back on July 19, 1984, Democratic presidential candidate Walter Mondale pledged to raise taxes if he defeated the White House incumbent, Ronald Reagan.

As a young Reagan campaign staffer that year, I was thrilled; at re-election HQ, we all felt that Mondale had just doomed his own campaign.   

Interestingly, the Democrats back then were at pains to make the exact same linkage to infrastructure, i.e., their tax increase would pay for more roads and bridges, that the Democrats are making now. In fact, the Democrats’ campaign platform that year mentioned “infrastructure” a full 19 times.

As we all know, Mondale lost in a landslide. In other words, the idea that the Democrats are going to raise taxes to pay for infrastructure is nothing new, and it hasn’t had such a good history.  

To be sure, times change, and every election is different. Still, it’s hard to believe that the American people wish to see a tax hike that will take the country back to the economically inferior condition it was in as recently as last year.   

One of the 1984 Reagan campaign spots still resonates in this author’s head. That ad asserted that thanks to Reagan’s policies, which included the tax cut of 1981, “Our country is prouder, and stronger, and better.” 

Then the spot closed with a powerful question: “Why would we ever want to return to where we were less than four short years ago?” 

That was, indeed, a strong message for Republicans in 1984, because the American people never want to turn back the clock. So now in 2018, Republicans might ask virtually the same question: “Why would we ever want to return to where we were less than four short months ago?” 

James P. Pinkerton served as a domestic policy aide in the White Houses of Presidents Ronald Reagan and George H.W. Bush, as well as the Reagan presidential campaigns of 1980 and 1984.  From 2011 to 2018, he was the co-chair of the RATE Coalition, a group that advocates for a more competitive tax code.