After supposedly chomping on the bit for years to pass meaningful tax reform, Republicans are now set to blow an historic opportunity. Whatever version of the Bill that emerges from the House and Senate Conference Committee (which will be signed by President Trump faster than he can down a Filet o’Fish), will be far less than the Republicans envisioned when they finally captured the White House and both Congressional Chambers in 2016. But from what I have seen of the particulars, the revisions to the tax code will offer a marginal, although temporary, win for low income individuals, a major slap for moderately successful wage earners and home owners, (especially in the high tax Blue States) and a huge victory for the extremely wealthy and certain categories of business owners. While it is certain that the plan will add to the growing deficit, its immediate economic and political impact is hard to predict.
For generations, taxpayers and politicians alike lambasted our overly complex tax code for its myriad of economic distorting loopholes that seemed to produce nothing except employment for legions of accountants and tax lawyers adept at gaming the system. As a result, talk about tax reform has always included proposals to make the system simpler, fairer, and more transparent. But on that front, the Republican proposals fail miserably. Trump and Congress will hail this achievement as being a major victory for the American people. But the true winner will be the swamp that Trump promised to drain.
Unlike Ronald Reagan, who passed tax reform in 1986 by striking a deal with Democrat House Speaker Tip O'Neill, Trump and Congressional Republicans faced no particular need to compromise. If Reagan had the benefits enjoyed by Trump, Ryan and McConnell, his tax cuts would have been paired with significant spending cuts and perhaps a balanced budget. But to get O’Neill (and his whopping 71 seat House majority) to go along, Reagan's ideals of fiscal prudence and smaller government had to be set aside. But Trump is no Reagan, and today’s Republican Party has about as much commitment to shrinking the size of government as did the Democrats in the 1980s.
Taxes are the price we pay for government. If Republicans want to reduce the tax burden, they need to make government less expensive. Tax cuts without spending cuts is the Republican version of a free lunch. But if government spending is not paid for with tax revenue, alternate sources must be found that will ultimately prove more costly than the forgone tax revenue.