3 Things to Watch on Tax Reform

taxesWith TrumpCare flopping like a dying fish in the bottom of a boat, the Trump administration and Congress are trying to turn the page and prepare for the next legislative challenge: taxes. It’s important to note that the Republican leadership and President Trump are occasionally conflating the terms tax reform and tax cuts. While tax reform could include a reduction in taxes for some or many Americans, true tax reform involves many, many difficult decisions. Here are three things to be aware of as Washington turns its attention to making the tax code they created “simpler and fairer.”

  1. Advocacy – The Obamacare repeal and replace effort failed in large part because the president and Congressional leaders did little to advocate for it beyond making appearances on cable news. When President Obama was working with Congress to get Obamacare legislation passed, he traveled the country holding town halls, deputized his cabinet and surrogates to speak across the country, and also asked members of Congress to advocate in their home districts. With TrumpCare polling under 20% there was almost no effort to reach out to constituents. It seems, however, that the administration may have learned its lesson as they gear up for tax cuts and/or tax reform this fall. For starters, Katie Glueck reports that outside groups are already allocating millions of dollars to help advocate for the Republican tax initiative this fall. Secondly, President Trump plans to be more engaged in the process using the bully pulpit and his personal brand as a successful business owner in the effort.
  2. Complexity and Transparency – Congressional leaders have set a fairly aggressive schedule for accomplishing what they call tax reform with some estimating that everything will be completed this fall when Congress reconvenes. The problem: the tax code is so immensely complex – by all accounts more complex than health care policy – with thousands of tax loopholes that have been in place for decades. These loopholes are critical to a wide variety of industries – from manufacturers to mining companies to service industries – and each will fight vigorously to keep their loopholes in place. With so many difficult decisions necessary it is highly possible that Congressional leaders will once again draft their legislation in the back rooms of Congress to limit frantic lobbying. There were a ludicrous number of instances where representatives, when asked for comment on Obamacare repeal legislation, had to grudgingly concede that they had no idea what was in the bill. Because tax reform is so complex, it’s likely that transparency will once again be a casualty of an aggressive agenda.
  3. Projections – All of the proposed tax cuts and reforms floated so far by the Trump administration and Congressional leaders are counting on tax cuts providing instant and sustained economic growth that will make up for the loss in revenue. The supply side economic model, however, took a significant hit this spring with the failure of Kansas Governor Sam Brownback’s disastrous experiment of draconian tax cuts designed to spur economic growth and investment. We need to look carefully at glowing projections of growth that will pay for the tax cuts. There are no viable economic models that support these projections.