Since his inauguration, President Donald Trump has faced the stark reality that getting others in government to go along with your agenda is no easy task. Judges have slowed the president’s efforts to impose “extreme vetting” on refugees coming in from seven countries with a known history of terrorism, and Congress has been unable to reach an agreement on repealing Obamacare. But the golden goose of the president’s agenda is tax reform, and, if history is any guide, this won’t be an easy task.
During the campaign, then-candidate Trump made a compelling case that America’s complex tax system is out-of-date and anti-competitive. He proposed reforms that would simplify the tax code, reduce taxes on taxpayers and businesses, and change provisions to make America more competitive globally.
Congress is now poised to undertake the grueling task. It is critical that Congress not get hung up on the “pay-fors” of the tax cuts. “Pay-fors” are Washington-speak for robbing Peter to pay Paul. Typically, when Congress tries to reduce taxes on one group, it will “pay for” those taxes by raising taxes on someone else. This is a formula for disaster.
The tax code is replete with instances where Congress used the “pay-for” shell game. During consideration of Obamacare, some of the costs of the legislation were offset with new taxes on tanning salons, medical devices and union health care plans. The results were more than predictable. It is estimated that the “tanning tax” forced the closure of nearly 10,000 small businesses. The medical device tax cost an estimated 20,000 jobs, hurting a critical industry that supplies everything from pacemakers to blood pressure machines. Union health care plans, along with some from businesses, were taxed at 40 percent because they were too good! These are some of the examples of laws that were passed solely to placate bureaucratic bookkeepers.
Congress will be tempted to go down this road on tax reform again. It is a dead-end street.
Earlier draft versions of tax reform included some of these types of provisions. One was called “accrual accounting.” The provision, if adopted, would force small businesses, partnerships, doctors and lawyers to be taxed on their accounts receivable, rather than their actual income. This “phantom income tax” would complicate the tax code, bury small businesses in paperwork, and force more interaction between businesses and the Internal Revenue Service. And the only justification for the provision appears to be that it makes it look good in the eyes of the congressional accountants.
Congress should shelve the idea of “paying for” tax reform. Reduce taxes. Make America competitive again. Simplify the tax code. Don’t allow one group to receive a benefit while the other group is forced to carry a burden.
The Reagan tax cuts in 1981 didn’t play this congressional shell game. It was a straight, across-the-board tax cut that produced a decade’s worth of…