Image: Atlas Obscura
Health care reform legislation died on the floor of the senate this week when Susan Collins (R-Maine) and John McCain (R-Arizona) declared they would not support the Gram-Casady Bill. (The controversial third attempt at repealing and replacing the Affordable Care Act).
As a result, McConnell announced Tuesday night that tax reform would be the new focus of the Grand Old Party (GOP) and they would, for the foreseeable future, stop trying to repeal and replace Obama Care. So, why is tax reform so important? Tax reform is a long process that can do a number of different things. It ultimately boils down to closing loopholes that encourage inefficient behavior and writing new laws to ensure that the government has enough funds to operate. However, an important distinction needs to be made: tax reform does not necessarily mean tax cuts.
Congress wants to implement tax reform for three major reasons:
The current tax code’s complexity allows for evasion: People who know tax code well are much better at finding loopholes than the average middle class family and in turn pay less.
Difficulty Planning: Tax codes are always changing, which makes it hard plan for the future, such as paying for education or 4O1Ks. The IRS reportated that with the last 10 years, the tax code changed 4,428 times.
Horizontal inequity: People that earn roughly the same amount might get taxed different amounts. For example, homeowners get thousands of dollars of breaks on their income taxes, whereas a renter does not. Examples like this breach principles of equality under the law.
Wednesday morning the GOP unveiled their tax reform bill. They proposed that corporations currently paying 35% of their income in taxes would now only have to pay 20% of their income to the government. Additionally, US companies overseas would have a lower rate than they currently do. There are two problems with the plan:
It does very little to fix the three problems listed above.
It would cost trillions of dollars in tax revenue. With no plan for cutting government expenses.
So, the first question we should be asking is: who would be paying the difference in revenue? The problem is that no one in the public knows. The Republicans are not releasing that information until the last possible minute because it gives their opponents less time to react and less time to lobby for alternatives.
“They’re going to withhold them as long as they can,” said one former Republican tax aide in an interview with Politico. “If you don’t give the details on how to pay for it, people can’t really lobby against it.”
With this, tax reform might definitely be needed, but this might not be the tax reform we deserve.