Battle4Liberty

Senate Republicans are now debating their own version of tax reform. As I write, the Senate bill entirely eliminates the deduction for state and local taxes, while the House retains a deduction for property taxes. This deduction is illogical, subsidizes state and local governments; it should be eliminated and balanced with a rate cut. But on the whole, the Senate is straying even further than the House from real reform.

Senator Cruz’s opposition to the bill is most curious: “There are some taxpayers in some high-tax states like New York and California that could conceivably be paying higher taxes. I think that is a mistake. I think tax reform needs to cut taxes for everybody.” But his argument is logically flawed.

The only way we can ensure that everyone gets a tax cut is to retain all of the complexity of the current system. To be blunt, real tax reform probably means that some people could pay more. Lower rates reduce the burden on everyone and should more than cover the elimination of deductions for most Americans, but the greatest beneficiaries of those deductions could see a net increase. This is precisely why the system needs to be reformed in the first place; it arbitrarily favors some taxpayers over others. It takes political courage to say this, but it’s the core argument for real reform.

It’s difficult to predict the outcome at this point, but it looks like anything that gets passed will constitute limited reform at best. To be fair, there are some positives on the corporate side. In the end, supporting an incremental improvement is worthwhile, but it’s a shame to pass on an opportunity for real reform that might not come again.