AFTER MONTHS of talking about tax reform, the Trump administration and Republican leaders of Congress have emerged with a statement of what they have in mind — or, more precisely, what they do not have in mind. The GOP has abandoned what was once its most innovative concept for tax reform, to pay for sharply reduced marginal rates on business through what would have essentially been a tax on the huge U.S. trade deficit, yielding an estimated $1 trillion over a decade. While this would have encouraged companies to invest and produce in the United States, that positive result could have been outweighed by negatives — disruptions to international financial markets, a challenge at the World Trade Organization, short-term spikes in consumer prices. In short, it’s just as well that Republicans have abandoned the idea, which was always more popular in the House than in the Senate and the White House and had little chance of passage.
Alas, that leaves lawmakers again searching for a way to pay for the rate-cutting they remain determined to achieve. According to the “Joint Statement on Tax Reform” they issued Thursday, Republicans still intend to provide “tax relief for American families” and to make corporate taxation more competitive in international terms. Unless and until they come up with a replacement for the $1 trillion in revenue they have just disavowed, the would-be reformers have only two choices: scale back their tax-cutting plans or greatly increase the federal deficit.
We hope they would opt for the former course; though President Trump has called for a new corporate rate as low as 15 percent, down from the current 35 percent, it would only take a smaller reduction, to 25 percent or so, to put the United States back on par with its peers in the advanced industrial world. However, we fear that Republicans will do what they have done too many times in the past — shower new tax breaks on companies and the well-to-do and stick future generations with the tab.
A new wrinkle has emerged in the form of a proposal for a 44 percent top marginal rate on individual income greater than $5 million a year, up from the current 39.6 percent maximum, which has been floated within GOP circles by Mr. Trump’s chief strategist, Stephen K. Bannon. Ever the populist, Mr. Bannon is sensitive to the bad political optics of a “reform” plan that amounts to yet another deficit-financed bonanza for the rich. Mr. Bannon’s notion alone could probably not raise anywhere near enough revenue to fill the holes Republicans seem intent on opening elsewhere in the tax code. It’s significant, and positive, that it has even become part of the policy discussion. Even better, however, would be a GOP plan that paid more than lip service to progressivity and fiscal responsibility.
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