For some time, I've been saying, perhaps naively, that we ought to have a real debate about tax reform, and maybe actually accompish something. Sure, Democrats and Republicans have different goals when it comes to this issue—Democrats would like to see the elimination of loopholes and greater revenue, while Republicans want to reduce taxes on the wealthy—but there may be a few things they could agree on somewhere in there. You never know.
So today, Representative Dave Camp, the chair of the House Ways and Means Committee, is releasing the latest incarnation of Republican tax reform. And it's...exactly what you'd expect. Unfortunately.
In fact, though we're waiting for details, it looks almost exactly like the plan Republicans released two years ago. The centerpiece is an elimination of most tax brackets, leaving only two, at 10 percent and 25 percent. In a total shocker, that means a huge tax break for the wealthy! I know—I too am amazed that Republicans would propose such a thing.
But they'll make up the revenue, they protest. How? Well as always, Republicans say they'll eliminate loopholes, but won't say which ones. The reason for that is simple: everyone hates loopholes that other people benefit from, but everyone wants to keep their own loopholes. As long as you never say which loopholes you'd eliminate, nobody has reason to fight against your plan, since they don't know whether the ox being gored is theirs or someone else's. Furthermore, the really big loopholes are ones that lots of people love, like the mortgage interest deduction, a largely middle- and upper-class entitlement that cost the Treasury $82 billion in 2012, or the deduction for employer-provided health insurance, the largest tax expenditure at a whopping $184 billion. Think anyone's going to eliminate those? Not on your life. But that's where the real money is.
There is one new thing in this Republican proposal, a surtax on certain incomes over $400,000 a year, which would assumedly recover some of the money we're losing by cutting those people's taxes. But there are some devilish details. First, some kinds of high earners, like those in manufacturing, are excluded. And most importantly, it would only apply to wages over $400,000, and not investment income. In other words, as is usually the case with Republican proposals, they reflect a particular value: that work should be taxed at a higher rate than investments. And of course, the higher you go up the income scale, the greater the proportion of their income the wealthy get from their investments.
One final note on this. The part of the plan that will get the most attention is reducing the number of tax brackets to two. This is always offered in the name of "tax simplification," but the truth is that the number of brackets is just about the least complicated thing about the tax code. Kevin Drum has it right:
I'm not encouraged by the fact that reducing the number of tax brackets is apparently a key feature of this "simplification" plan. That doesn't simplify things by even an iota. The hard part of calculating your taxes, after all, is figuring out your taxable income. That takes about 99.9 percent of your time. Once that's all done, the final step is to look up your tax rate and then multiply the rate by your taxable income. That part takes about 30 seconds.
In fact, we ought to have more tax brackets, not fewer, particularly at the high end. There's no reason that someone making $400,000 a year should pay the same marginal rate as someone making $400 million a year.
Anyhow, the most consequential feature of this Republican tax plan, like those that came before it, is its attempt to relieve the nation's wealthy of their burden of taxes, so terribly weighed down as they are. Maybe I'm forgetting something, but I can't recall there ever being a Republican tax plan that didn't propose precisely that. Ever. And they wonder why Democrats have so much success characterizing them as the party of the rich.