The Trump administration and the Republicans in Congress finally moved one step closer to getting tax reform done. While some GOP members fear that President Donald Trump’s original tax reform project will not be as bold and ambitious as first intended, it will ostensibly be a lot more realistic.
Treasury Secretary Steven Mnuchin, House Speaker Paul Ryan (R-WI), and Senate Majority Leader Mitch McConnell (R-KY) announced in a joint-statement last week that they have removed the border adjustment tax (BAT) from the proposal. One of the reasons they are getting rid of the BAT is because of the “many unknowns”:
While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform.
And we are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base.
The statement did not provide any more crucial details, and this has some in the Republican Party concerned. Since the border adjustment was expected to raise more than $1 trillion in revenues, the GOP leadership will need to find ways to replace that revenue stream.
Although the “Big Six” tax reform group – it also includes National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch (R-UT), and House Ways and Means Committee Chairman Kevin Brady (R-TX) – are pleased with the progress, some Republicans are not happy. A growing number of GOP members feel that any initial tax reform efforts are beginning to be watered down out of political expediency.
Speaking in an interview with The Washington Examiner, Representative David Nunes (R-CA) said there will not likely be any “fundamental reform”:
Unfortunately, we’re not going to have fundamental reform and it will make it hard to get the rates down low. There are still opportunities out there, they’re going to be hard to achieve, but we’re going to try and get there.
Moving forward, many congressional Republicans reportedly only see lower tax rates and the elimination of tax breaks as part of any so-called comprehensive tax reform. It is true that tax cuts are always welcomed and needed, but it is a far cry from what the Republicans campaigned on in 2016 and previous years.
The folks in the retail industry are delighted. They lobbied against the border adjustment, arguing that it would cost jobs and come with a hefty price-tag for retailers.
Economist Veronique De Rugy of The National Review is also satisfied, writing that it likely means a value-added tax (VAT) and a carbon tax are off the table in the near future:
The “without transitioning to a new domestic consumption-based tax system” part of the statement, I assume, means that there will be no Value Added Tax (VAT) on the table in our near future. That is also great news. And after the BAT debacle, I wonder how the growing conservative support for a carbon tax will be affected, since such a proposal is likely to include some sort of border adjustment. I doubt Republicans will go anywhere near that issue for a while.
In the end, the Republican leadership’s failure to establish real tax reform, such as scrapping 75,000 pages from the U.S. tax code, illustrates an important point: tax reform is a myth, and it will never be achieved by any Republican, Democrat or Independent in our lifetime.
Most will concur that the U.S. tax system is a mess: taxes are immense, the regulations are vast, and comprehension of the federal tax code requires professional accountants (or Latin translators). But no matter how bad it is, the record of politicians proves just one thing: they could make the U.S. tax code much worse.
As the old adage goes, the road to hell is paved with good intentions. Some Republicans, including President Trump, may have good intentions, like simplifying the tax code, but they will likely not solve any of the existing problems and will only make matters worse.
The Republicans do not need to make it difficult. They could implement two solutions: cut taxes, which they are possibly going to do, and cut spending, which will not happen. Three-time presidential candidate and former Representative Ron Paul (R-TX) already saw the writing on the wall in February, opining:
Unfortunately, while Congress may make some small cuts in domestic spending, those cuts will be dwarfed by spending increases on infrastructure Keynesianism at home and military Keynesianism abroad. As long as Congress refuses to make serious reductions in spending, the American people will be subject to the tyranny of the IRS and the Federal Reserve.
When Republicans hold a meeting at the Reagan Ranch later this month to promote the tax reform initiative, you shouldn’t get your hopes up. The GOP may worship former President Reagan, but you won’t see them channel the spirit of The Gipper at his ranch.