House Republicans on Thursday unveiled details of their tax reform package, and — despite the predictable caterwauling from the left about “the rich” — there’s much to like.
In fact, the proposal provides relief to most middle-class families and includes a number of sops designed to get a handful of moderate Democrats on board. It’s not perfect, of course, but it’s a reasonable attempt to simplify the code in the name of fairness and efficiency.
Given that the top 1 percent of all earners foot half the U.S. income tax bill, it’s hard to craft relief that won’t benefit the wealthy. Likewise, complaints from progressives that the Republican measure doesn’t offer enough help to wage earners in the bottom quarter is disingenuous, given that they don’t pay any federal income taxes to begin with.
The proposal compresses the number of tax brackets from seven to four while leaving the top rate at 39.6 percent — although it increases the level at which it kicks in. It also permanently cuts the corporate tax rate from 35 percent to 20 percent, something even many Democrats have advocated for years. In terms of simplification, it repeals personal exemptions and reins in several popular deductions.
For instance, the popular mortgage-interest deduction will apply only on first loans up to $500,000, ending the deduction on second homes — hardly a handout for the rich. The bill limits deductions for state and local taxes to a maximum $10,000 write-off for property taxes. It also kills the deductability for student loan interest and medical expenses, while repealing the credit for adoption. House Republicans have also targeted certain loopholes for big banks and life insurers.
All these provisions no doubt have their vocal defenders. But the tax code has become so bloated and complicated over the years thanks to the political temptation to use it as a massive social engineering mechanism to reward and punish various behaviors. Such tampering and rent seeking creates distortions and inefficiencies that have major economic consequences.
It’s worth noting that many of these changes will have little effect on middle-income taxpayers because the bill also doubles the standard exemption, which will reduce the number of Americans who itemize their federal returns. That alone will help many families save on their tax bills.
“The special interests will distort the facts, the lobbyists will try to save their special deals and some in the media will unfairly report on our efforts,” President Donald Trump said in a statement, the Wall Street Journal reported. “But my administration will work tirelessly to make good on our promise to the working people who built our nation and deliver historic tax cuts and reforms — the rocket fuel our economy needs to soar higher than ever before.”
Make no mistake, this bill faces serious obstacles. There’s a reason no significant tax reform has passed Congress in three decades. But the president and congressional Republicans have so far succeeded in moving the process forward. The challenge will be to maintain the momentum.