Republicans Chicken Out on Tax Reform
For three years, "tax reform" has been the centerpiece of the Republican Party's program for the American economy. Ever since taking control of the House, GOP leaders have promised that "lowering rates" while "broadening the base" would produce "revenue-neutral" tax reform. In 2011, 2012 and again in 2013, 95 percent of Congressional Republicans voted for the Paul Ryan House GOP budget establishing just two tax brackets at 10 and 25 percent, while promising to recoup hundreds of billions of dollars in lost revenue annually by closing some of the tax breaks that now cost Uncle Sam about $1.2 trillion a year. "We won't duck the tough issues," Mitt Romney's newly anointed running mate Paul Ryan told voters in August 2012, "We will lead."
As it turns out, ducking the tough issues is exactly what Ryan and his GOP colleagues in Congress have done. After three years of refusing to name a single tax expenditure or deduction they would curb or close, Republicans are chickening out on tax reform altogether.
That's the word from Politico, which reported this week that House Republicans have put the tax reform proposals of House Ways and Means Committee Chairman Dave Camp (R-MI) on ice. Seven months after they threatened to tie any debt ceiling increase to tax reform and five months after Camp promised them 50 years of secrecy for any loopholes they'd suggest for closure, Paul Ryan and his Republican allies have decided discretion is the better part of valor:
House Speaker John Boehner (R-Ohio) and others pulled the plug last month on Camp's long-standing vow to take up a tax overhaul bill this year, putting his three-year quest in limbo. The reversal shows how support for tax reform, even among Republicans, is broad but not deep. They routinely say they want to overhaul the Tax Code, but when the Michigan Republican pushed to take the first big step -- putting out a bill -- party leaders blinked.
They blinked because the math is hard--and the politics even worse.
Here's why. While repealing Obamacare, slashing Medicaid funding by a third and leaving roughly 38 million more people uninsured, the Ryan budget still runs up trillions in new red ink thanks to its massive tax cut windfall for the wealthy. According to the nonpartisan Tax Policy Center, Ryan's plan to reduce the top tax rate from 39.6 to 25 percent, to shift from seven income brackets to two (10 and 25 percent), to cut the corporate tax from 35 to 25 percent and other changes will cost Uncle Sam $5.7 trillion over the next 10 years. In March, the Center on Budget and Policy Priorities (CBPP) forecast that Ryan's payday for the gilded class would slash the average tax bill for millionaires by $330,000 (15.4 percent) a year.
As TPC's Howard Gleckman explained the numbers:
The tax cuts described in Ryan's budget would generate a huge windfall for high-income taxpayers. On average, households would get a cut of $3,000. But those in the top 0.1 percent of income, who make $3.3 million or more, would get a whopping $1.2 million on average-a 20 percent increase in their after-tax income.
To put it another way, each of the Ryan budget budgets backed by House and Senate Republicans over the last three years inevitably will produce both oceans of red ink and a Treasury-draining payday for the rich. Unless, that is, Republicans can identify which tax breaks and loopholes they would limit or end to prevent those two certainties from coming to pass.
And from the beginning, that's precisely what they've been too cowardly to do.
As the Washington Post showed (chart above), the trillion-plus dollars in annual tax expenditures is now larger than Uncle Sam's take from the income tax each year. Much of the estimated $1.3 trillion in annual tax expenditures in 2015 (a figure almost double the size of the last fiscal year's budget deficit) benefits working and middle income Americans. For example, the home mortgage interest deduction was worth $89 billion in 2011. Tax-deferred 401K accounts cost the Treasury $63 billion that same year. The Earned Income Tax Credit had a similar price tag. It's no wonder, as the Post concluded, "ever-increasing tax breaks for U.S. families eclipse benefits for special interests."
So which ones would John Boehner, Paul Ryan, Mitch McConnell and company curb or close? We're still waiting for an answer.
Matthew Yglesias mocked the dodge at the center of Ryan's 2012 budget, the same one he used before and since:
Thirteen pages dedicated to explaining his vision for revenue-neutral tax reform. And even so he manages to not name a single tax deduction that he's planning to eliminate. Home mortgage interest deduction? I dunno. Electric vehicle tax credit? I dunno. Deductibility of state and local income taxes? I dunno.
That same month, Paul Krugman tried to decipher which deductions and tax breaks are actually in the mystery meat that is Paul Ryan's budgetary dog food. As he explained in "Pink Slime Economics":
We're talking about a lot of loophole-closing. As Howard Gleckman of the nonpartisan Tax Policy Center points out, to make his numbers work Mr. Ryan would, by 2022, have to close enough loopholes to yield an extra $700 billion in revenue every year. That's a lot of money, even in an economy as big as ours. So which specific loopholes has Mr. Ryan, who issued a 98-page manifesto on behalf of his budget, said he would close?
None. Not one. He has, however, categorically ruled out any move to close the major loophole that benefits the rich, namely the ultra-low tax rates on income from capital. (That's the loophole that lets Mitt Romney pay only 14 percent of his income in taxes, a lower tax rate than that faced by many middle-class families.)
Appearing on MSNBC's "Morning Joe" on March 20th, 2012 Congressman Ryan declared he would "get rid of the special interest loopholes, special deductions, lower everybody's tax rates, bring in at least as much revenue to the government but grow the economy and create jobs, and get spending under control so we can pay off this debt." But when host Joe Scarborough asked "Which one of those [loopholes] do you eliminate," Ryan decided to duck and cover:
"We want to do this in the light of day and in front of everybody. So the Ways and Means Committee, which is in charge of the tax system, sent us the plan here, which is a 10 and 25 percent bracket for individuals and small businesses, and then they want to have hearings and, in light of day, show how they would go about doing this."
Appearing on CBS Face the Nation just days later, Ryan again claimed that "We're proposing to keep revenues where they are, but to clear up all the special interest loopholes, which are uniquely enjoyed by higher income earners, in exchange for lower rates for everyone." But he once again pleaded the Fifth when asked which "special interest loopholes" he would do away with:
"That's what the Ways & Means Committee is supposed to do. That's not the job of the Budget Committee," Ryan said on Fox News Sunday. "What we're saying is, we want to do this in the light of day, not in some backroom deal. We want to have hearings in the Ways & Means Committee that Chairman Dave Camp has already started that work, to say what tax benefits should go."
Almost two years later, Camp won't publicly say what tax benefits would go, either. As McClatchy reported in June on the progress he and Senate Finance Committee Chairman Max Baucus (D-MT) had made:
Both chairmen refused to say what they supported or what tax loopholes they'd propose closing. Camp focused instead on areas of agreement.
"There are so many good (tax) simplification policies that we agree on," he said.
Asked whether they'll propose limiting the mortgage-interest deduction that homeowners now enjoy, Camp acknowledged that two-thirds of Americans don't itemize their federal taxes and said that perhaps a complete rethink was in order.
A complete rethink, indeed. During the 2012 campaign, Paul Ryan's running mate Mitt Romney similarly called for closing tax loopholes to offset his huge tax cuts for the wealthy. For months, Mitt Romney had performing the same trick as Ryan, promising only that the "1 percent keeps paying the current share they're paying or more." His economic adviser Glenn Hubbard even confirmed Romney's cowardice, explaining "it is not his intention to take on any specific deduction or exclusion and eliminate it."
Unfortunately for the Republican ticket, nonpartisan analysts trying to model Romney's proposals did. And the picture they painted wasn't a pretty one. Even after assuming the closure of tax loopholes and deductions which disproportionately favor the rich, the Tax Policy Center forecast that President Romney would end up cutting taxes for the richest five percent of earners while increasing the tax bill for the other 95 percent of Americans. It's no wonder Ezra Klein concluded that "'broadening the base and lowering the rates' is anti-family tax reform," adding:
"The size of the tax cut he's proposing for the rich is larger than all of the tax expenditures that go to the rich put together. As such, it is mathematically impossible for him to keep his promise to make sure the top one percent keeps paying the same or more."
Romney stuck to his line, assuring voters those gains for the gilded class weren't true because no one could predict what his plan would do. During an appearance on CNBC, he went for the full ostrich:
"So I haven't laid out all of the details about how we're going to deal with each deduction, so I think it's kind of interesting for the groups to try and score it, because frankly it can't be scored, because those kinds of details will have to be worked out with Congress, and we have a wide array of options."
In response, the Post's Klein could only shake his head:
"Let's be clear on this: A tax plan that can't be scored because it doesn't include sufficient details is not a plan. It's a gesture towards a plan, or a statement of intended direction, or perhaps an unusually wonky daydream. But it's not a plan."
It's certainly not plan, but instead a fraud. Yet just days after Barack Obama vanquished his Republican opponent, Missouri Republican Senator Roy Blunt suggested the President make the Republican scam his own. "Look at ways to increase revenue by one growing the economy" he said on Fox News, "and two, maybe look at the tax code, just like Governor Romney suggested, you look at the tax code and increase revenue without increasing taxes." House Majority Leader Eric Cantor agreed:
"What would be best is a fundamental reform of the tax code that lowers rates, broadens the base, makes America's business competitive again, and reduces the burden imposed by taxes on work and investment."
But by September, Cantor didn't even include tax reform in his list of priorities for House Republicans. As for Paul Ryan, next week he has a compromise budget proposal to work on with Democratic Senator Patty Murray, a task he must complete to avoid another embarrassing government shutdown for the GOP. And after that, he has a 2016 presidential campaign to contemplate. All of which means the Republicans' three-year tax reform scheme is, at best, on the backburner. As Politico concluded, Camp and House Budget Committee Chairman Paul Ryan did not make it any easier on themselves:
Lawmakers had no idea how they'd make the math work. It would be a mammoth task, forcing them to dig into big, popular middle-class tax breaks.
Or, to put it another way, tax reform is dead. Long live tax reform.
(This piece first appeared at Dailykos.)