Tax Reform: Keep It Simple

Let us begin with a simple fact: Since January, when the Republicans took over the presidency as well as both house of Congress, they have not passed anything approaching a major piece of legislation. So what’s the problem?

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tax reform legislation
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The problem may be very simple: They are trying to pass very complicated laws. And in doing so, they have been unable to obtain the near-unanimous consent they needed in the Senate – not to mention the contentious bargaining among the disparate factions in the House.

After spending months futilely attempting to repeal and reform Obamacare, their leaders announced their determination to pass major tax reform legislation before going home for Christmas.

To put this ambitious feat in historical context, the last major tax reform legislation was passed in 1986, after years of bipartisan negotiation. So now, these guys were going to complete all their work in less than two months. Good luck!

But wait folks, there’s more! Now, our Republican friends are going to pass a major tax reform bill before the end of the year, and at the same time, a partial repeal of Obamacare.

I think two adages are relevant here. First, if you don’t succeed, try again. And second, as Albert Einstein observed: the definition of insanity is to keep doing something over and over again and expecting a different result.

So what can the Republicans do to secure at least some degree of tax reform? The answer is to keep it simple.

At a minimum, forget about repealing part of Obamacare. Sure, it’s a very tempting target for Republicans running for reelection in 2018. But there’s still another adage to consider: A half a loaf is better than none.

Concentrating on just tax reform is hard enough, so why not make the law as simple as possible? Since it’s being billed as a “middle-class tax cut,” why not make it one that middle-class Americans can actually understand?

By far, the most important part of the tax package is the lowering of the tax rate paid by large corporations from 35 percent to just 20 percent. Although touted as a boon to middle class wage-earners, it’s actually a huge gift to those companies and their wealthy stockholders.

Lowering the top marginal income tax rate from 39.6 percent to 35 percent is not a middle-class tax cut. Nor is any l the federal inheritance tax.

And repealing one of the main pillars of Obamacare is certainly not a middle-class tax cut.

There is just one measure that clearly lowers taxes paid by middle- and working-class families. That is the almost doubling of the standard deduction. But what one hand gives, the other takes away: taxpayers who don’t take the standard deduction will lose part or all of their deductions.

Republicans need to figure out a way to convince middle- and working-class voters that they are all getting a substantial tax cut. And the best way to do that would be to keep things very simple.

About the Author

Steve Slavin has a PhD in economics from NYU, and taught for over thirty years at Brooklyn College, New York Institute of Technology, and New Jersey’s Union County College. He has written sixteen math and economics books including a widely used introductory economics textbook now in its eleventh edition (McGraw-Hill) and The Great American Economy (Prometheus Books) which was published in August.