I recently addressed the idea that Republicans should scale down their tax reform ideas and just push through a tax cut. This idea is gaining steam following frustration with the Obamacare repeal debacle, but it’s fraught with two major problems.
I’ve already discussed the first problem. We must get rid of the cronyism embedded in the tax code—or at least a big chunk of it—and just cutting rates will keep everything intact. This is why the corporate cronies are pushing the idea of kicking the tax reform can down the road. They benefit from the current system at taxpayer expense and they don’t want reform anyway.
Real reform and tax simplification means cutting social engineering from the tax code. Social engineering uses tax funds to promote or discourage certain types of business activity. The winners from the current system don’t want it to change. They usually claim to favor tax reform and simplification while adding a quick “but” that exempts them from the actual change.
The second problem is a political one. Individual tax cuts almost always favor lower- and middle-income brackets for political reasons; politicians don’t want to defend “tax breaks for the rich.” Likewise, tax hikes usually hit middle- and upper-income earners for the same reason. Over time, tax cuts and increases shift the tax burden disproportionately to middle and high earners. This has already happened, which is why about half of wage earners don’t even pay federal taxes and they don’t understand why their healthcare can’t be financed by those who do. The tax cut tax/hike cycle must be broken, and this requires a radically simple system, something close to a flat tax.
For these reasons, I implore real conservatives and libertarians to stand their ground and insist on real tax reform. Short cuts just won’t do.
maybe in an ideal world, but all we can get is a tax cut. better something than nothing.
Why not eliminate the income tax and go with a fair tax. Get politics out of taxes and watch the economy boom.
The idea that the main purpose of income is to pay bills incurred by the government has been lost to history, perhaps forever. It is used for favoring groups, juicing the economy and getting votes. To get bsck to the original purpose requires a major cultural shift that isn’t going to happen. Imagine the outcry if we eliminated home mortgage interest, charitable contributions and tax exempt bonds. Or made everyone pay something. The best we can do is nibble around the edges.
hey arthur, we must do more than nibble. we elected republicans and trump to do more than nibble. while we nibble, the current system is eating us alive.
I agree, Tarek. The pundits are predicting just a tax cut, but it’s time for reform. If not now, when?