Forget Tax Reform; Paul Ryan Wants Tax Redistribution

Paul Ryan - Tax RedistributionNow that repealing and replacing Obamacare has failed, Republicans in Congress say they are moving on to something different: tax reform. They are actually moving on to the same thing all over again. The American Health Care Act was a plan to give high-income Americans a big tax cut that would be financed with cuts to health-care subsidies for low- and middle-income people. Tax reform, at least as Paul Ryan and his allies envision it, is a plan to give high-income Americans an even bigger tax cut, financed by tax increases on lower- and middle-income Americans. Both plans are deeply unpopular (a poll found Americans opposing tax cuts for the wealthy by a three-to-one margin) and also have drawn opposition from powerful lobbies (in the case of tax reform, retailers violently oppose the border-adjustment tax that would offset much of the lost revenue).

Republican debates about tax policy are shrouded in a mist of obfuscation, since the party’s central goal, reducing taxes for the rich, is too unpopular to be described frankly. Instead, the intra-party strategy has been hashed out euphemistically, which has made the media coverage difficult to decipher. The terms “tax reform” and “tax cuts” have been thrown around almost interchangeably to describe the Republican plans. They’re very different. Tax reform is what Ryan and many of his allies say they’ll do, and possibly want to do. Tax cuts are what they will do.

Tax reform means a revenue-neutral adjustment of the tax code, which cleans out tax deductions and other preferences, and uses the revenue gained by this to reduce tax rates. The attraction of tax reform is that it avoids a drawback in Senate rules. The only kind of legislation that can pass the Senate by a majority vote, without being filibustered, is a budget-reconciliation bill. But these budget-reconciliation bills can’t increase the budget deficit after ten years. That requirement forced the Bush tax cuts to phase out after a decade. Republicans hope to avoid this fate by writing a bill that does not increase the long-run deficit. Hence their stated desire to pass tax reform rather than tax cuts. …

Why would Ryan attempt to shepherd into law a bill so dangerous, creating many times more losers than winners? Because Ryan does not want to settle for ten years of lower taxes that will expire automatically when he could have a permanent decrease. (Leave aside the fact that a “permanent” tax reform could be rewritten the next time Democrats win full control of government.) Ryan has repeatedly described the current government as “a once-in-a-generation opportunity.” Remember, the 1986 Tax Reform Act passed with bipartisan support. If Ryan wanted a 1986-type bill, the current all-Republican government wouldn’t be such a unique chance. Opportunities to pass bipartisan legislation arise all the time. In 2014, Dave Camp, the retiring chairman of the Ways and Means Committee, produced a plan that reformed the tax code without lessening the burden on rich people. The Republican Party pretended it never happened. That’s because tax reform is not their goal. Tax redistribution is.

–Jonathan Chait
Tax Reform Is Hard. Tax Cuts Are Easy.

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