Tax Reform vs. Tax Cuts

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Several weeks ago, I argued for the importance of tax reform, not just tax cuts. Since then, I’ve been listening closely to various politicians opine on the subject. When asked by reporters about their position on tax reform, many refer only to tax cuts in their response. The conversation usually goes something like this:

Reporter: Senator XXX, President Trump is calling for major tax reform. What is your position on this issue, and how likely is it that Congress will pass reform legislation?

Senator X: The American people need a tax cut and we need to get to work to make that happen. The focus should be on the middle class…

Perhaps I the only one who notices that many politicians discuss tax cuts when asked about tax reform. Are they using the terms interchangeably or are they trying to change the subject? Am I paranoid, or is something going on behind the scenes?

There is a real difference between tax reform and tax cuts. Most politicians know the difference and would rather steer clear of reform. And yes, I think something is going on behind the scenes. When asked specifically about tax reform—such as eliminating deductions for state and local income taxes—most Republicans get weak-kneed and refer to “many ideas on the table.”

Tax reform is about how the government collect taxes. It involves simplification of the system and eliminating deductions in exchange for lower rates across the board. It means standing up to special interest groups that beg for subsidies through the tax code for their industries, whether it be manufacturers of solar panels “promoting green energy” or realtors “pursuing the American dream of home ownership.” Real tax reform would reduce Washington’s influence in our lives, but passing it requires backbone. Every provision in the tax code benefits one group at another’s expense. Net losers from real reform won’t go down without a fight.

A tax cut is about how much the government collects. A broad tax cut is needed, but beware. Discussions about tax cuts pit one group against another. In order to pass political muster, cuts usually favor lower to middle income groups. Consider that tax increases usually hit upper income earners for the same reason and the cycle becomes clear. With alternating cuts and increases over time, the tax burden has shifted so that half of Americans don’t even pay federal income taxes any more, and many of the non-payers actually receive money through tax programs like EITC. This is why a tax cut without real tax reform is a mixed bag at best, and could be a net negative when a future Democratic Congress undoes the cut in a way that further shifts the burden.

Perhaps I’m just paranoid, but we will find out in the next few weeks.

4 Comments

4 Comments

  1. mountaineer  •  Oct 11, 2017 @1:34 PM

    you are not paranoid. Republicans have no spine. Just look at Corker

  2. tom7  •  Oct 11, 2017 @5:55 PM

    better a tax cut than no tax cut

  3. LR  •  Oct 13, 2017 @8:02 AM

    Paul Ryan says Congress will stay in session as long as necessary to pass tax legislation. I didn’t hear him say tax reform. You’re not paranoid, Parnell.

  4. Donald  •  Oct 15, 2017 @7:34 PM

    It depends on the reform. Increasing the standard deduction means more will not pay any taxes. Everyone needs to pay something. Reform can happen in two direction.

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