Even More Tax Cuts for the Rich Isn’t Tax Reform

This article first appeared on Dorf on Law.

For months, I have been pointing out that Donald Trump and congressional Republicans have been offering "non-plans" to change the tax code.

Issuing press releases containing nothing more than vague bullet points -- yet somehow also making it clear that their ultimate plan would be hugely regressive -- the ruling party promised that the final plan would deliver on their years of promises of fundamental tax reform.

Well, the House's plan is now in, and it is ... not tax reform.

It is a hugely regressive tax cut, but unless there is a new definition of "reform" such that that word now means "change in various uncoordinated and unprincipled ways," then this is not tax reform, and it is certainly does nothing to fundamentally change the nature of the tax system.

Changing the size of the standard deduction, or eliminating some preferences while expanding others, or even changing the number of tax brackets, is merely changing things within the same basic system.

Some of the Republicans' proposals (especially on the business side) are expensive and bad policy, but they do not change the structure or logic of the tax code.

I hasten to add that this is most definitely a good thing. It is certainly better to stick with our current flawed income tax system than to allow Republicans to enact what would be true reform of the worst kind, such as eliminating the income tax entirely and replacing it with a regressive consumption tax.

In fact, I recently argued that the best thing to do is to leave the tax code alone for the time being, given that every idea that could possibly be enacted by this Congress would take us in the wrong direction. This applies not just to fundamental reform of the type that Republicans often say they prefer but also to hodgepodges like the new House bill. Better a flawed status quo than a disastrous "reform."

GettyImages-98452319 Felipe Castro holds a sign advertising a tax preparation office for people that still need help completing their taxes before the Internal Revenue Service deadline on April 14, 2010 in Miami, Florida. Joe Raedle/Getty

The widely (if excessively) applauded 1986 tax reform bill was revenue-neutral, which meant that it was an effort to do something other than starve the Treasury. I have no doubt that the Republicans will point to the various provisions in their plan that would eliminate some deductions as proof that they are "cleaning up" the tax code. But the 1986 bill was an exercise in eliminating deductions in a coordinated way, while the current slapdash effort eliminates deductions seemingly at random.

The House plan, then, manages to do nothing to change the basic nature of the system (which, again, is good), while making a large number of changes that will mostly confuse people. There is no apparent unifying principle that drives the plan -- except, of course, that Republicans want to lavish tax cuts on wealthy people and large corporations. (Even the most well known --and very conservative -- small business lobbying group came out against it.)

But perhaps this is mere semantics. If so, however, the press is apparently happy to play the role of enabler. The New York Times continues to use the word "sweeping" to describe everything the Republicans propose on taxes. Their main story after the bill was released began: "Republican lawmakers unveiled a sweeping rewrite of the tax code on Thursday."

Interestingly, that article originally ran under the headline, "House Tax Plan Tilts Toward Business, with Sweeping Cuts." (Note: the article at the link provided carries a different headline, for some reason.)

So is it the cuts that are sweeping, or the rewrite? Both? The cuts are actually not sweeping at all, because whether or not they are a good idea, their size is not especially impressive.

And this is why the semantics matter. In the world that Republicans inhabit, and especially where Trump is concerned, impressive size is important. They are all committed to the idea that they have to do something huuuuge to prove that they can govern.

They claim to have big ideas about how to reform the tax system, but all they end up with (after years of promises) is a melange of changes that worsens inequality and relies on long-since-disproved trickle-down promises.

As The Washington Post 's Philip Bump pointed out yesterday, however, almost no one actually wants Congress to be spending its time trying to change the tax system, even in the abstract (much less this mess). According to recent polling, even Republicans (outside of Congress) show at best tepid support for a tax bill.

This is especially ridiculous because there is simply no good case for a tax cut right now, much less a regressive one. The economy is strong enough that the Federal Reserve is in the process of increasing interest rates, which means that they will accelerate their plans if a tax cut were somehow actually to stimulate the economy.

Moreover, less than a month ago the International Monetary Fund -- not an organization known for its collectivist tendencies -- warned that regressive tax cuts actually have a depressing effect on the economy. And Warren Buffett is not the only rich guy who has warned that Republican-style trickle-down is exactly the wrong way to increase long-term growth.

Trump and the Republicans. however, want their tax cuts. As Bump notes, the people who are most furiously pushing for a big tax cut are Republicans' political donors. They have succeeded in promulgating the lie that the party will be a failure if they do not deliver on their signature issue. Asking why tax cuts should continue to be their signature issue is not permitted.

All of which is why we are now staring at this non-sweeping non-reform mishmash of a tax bill. House Republicans have proposed eliminating the deductions for moving expenses and alimony. Why? To pay for the rest of the bill.

They also would eliminate the very limited deductions for college tuition, which are currently capped such that they only help middle- and lower-income students and their families. Is there a sweeping principle here, other than not caring about regular people?

Perhaps the most amusing aspect of all of this is the replay of what might be my favorite Washington event: the running of the fake moderates. Some Republicans want to claim that they are not in the pocket of the wealthy, so party leaders decided to leave the 39.6 percent  top marginal rate in place for taxable incomes above one million dollars annually.

Of course, this still gives people with taxable incomes between $470,000 (which is where the top marginal rate currently begins) and one million dollars a rate cut, to 35 percent . Good thing those moderate Republicans are looking out for the struggling $750,000-a-year crowd!

It reminds me of the reputed moderate Republicans who, during the multiple debates earlier this year over health care bills, were trying to reduce the number of people who would lose health coverage from 23 million to something less than that.

Yes, fewer is better in that context. But if all it takes to be a reasonable moderate is to be slightly less awful than Ted Cruz, it is time for a reality check.

Luckily, there is a very good likelihood that most or all of what is in this bill will never become law. Bruce Bartlett predicted a few days ago that Republicans will fail to pass any tax bill this year, and maybe even next year. Even Senate Republicans are already making noises that suggest trouble for the House's plan. As I argued above, legislative stasis is the best we can hope for.

Even so, it seems foolish to bet against something that is desperately desired by Trump, Republican leaders in Congress, and their most ideologically extreme donors. True, that group failed miserably on health care, but the old disclaimer applies: past performance is no guarantee of future results.

Neil H. Buchanan is an economist and legal scholar and a professor of law at George Washington University . He teaches tax law, tax policy, contracts, and law and economics. His research addresses the long-term tax and spending patterns of the federal government, focusing on budget deficits, the national debt, health care costs and Social Security.

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