Ethics & Religion
August 31, 2017
Column #1,879
Tax Reform Must Be Paid For
By Mike McManus

Tax reform will be the top agenda item of Congress this fall. President Trump has proposed big tax cuts, but has not outlined how they would be paid for. That is irresponsible.

First, he proposes cutting the top individual tax rate from 39.6% to 35%, and reducing the number of rates from seven to three: 10%, 25% and 35%. He also proposes reducing the top corporate rate from 35% to 15%. And he urges tax relief for families' child care that would allow parents to deduct the average cost of child care in their state.

This is good news to taxpayers - but not to their children, who will have to pay for the higher debt. The U.S. already owes nearly $20 trillion, and this year's deficit is $440 billion.

Medicare and Social Security alone cost $2 trillion. Trump has not even proposed reducing or eliminating Social Security payments to those with high incomes.

The Committee for a Responsible Federal Budget (CRFB), favors tax reform "because individual and corporate income taxes are overly complex, anti-competitive, inefficient, costly to comply with and littered with nearly $1.6 trillion of deductions, credits and other tax preferences."

However, Trump has not proposed closing any of those loopholes to pay for the tax cuts he offers everyone. This is fiscally irresponsible.

CRFB says that "Ideally, comprehensive tax reform should broaden the tax base, lower the rates, grow the economy and reduce deficits. As an absolute minimum standard, tax reform should not add to the debt."

The federal debt is 77% of the Gross Domestic Product, which is higher than it has been since the end of World War II. It is bound to go higher due to the overwhelming flooding of Texas which is likely to prompt 450,000 people to ask for federal help in rebuilding, according to Bruce Long, Administrator of the Federal Emergency Management Agency.

However, high and rising debt "threatens economic and wage growth and the nation's fiscal sustainability," asserts CRFB. Debt-financed tax cuts "can do more to hurt the economy than lower tax rates do to boost it."

However, have you heard a single Republican Senator or Congressman urge that tax cuts be paid for by cutting tax loopholes?

I have not.

Instead they call for "tax reform" like that proposed by Trump that would magically cut tax rates to make taxpayers happy - with nary a worry about how to pay for them.

CRFB points to $1.6 trillion of "special tax breaks or tax expenditures that complicate the code, distort decision-making, pick winners and losers, and tend to be regressive. If tax reform is paid for, policymakers will have to reduce these tax breaks in order to offset rate reductions."

The Committee estimates that balancing the budget within a decade requires "somewhere between $6.5 trillion and $8 trillion of budgetary savings." A $5 trillion cut would require cutting all federal spending by 10%. "Every dollar of unpaid for tax cuts makes achieving a sustainable fiscal target that much harder. For example, a $2.5 trillion tax cut would require hiking federal spending cuts from 10% to 15% of current outlays.

Trump and his Republican allies argue that cutting tax rates would boost the economy, because people would have more money to spend on cars, housing, etc. However, the Congressional Budget Office says at best one-quarter of the cost of a broad-based tax cut in individual rates could be offset by economic growth over a decade.

Furthermore, the Tax Policy Center and the Penn Wharton Budget Model show that the "dynamic effects would marginally reduce the revenue loss in the first decade, but significantly increase it over the long run because of the economic consequences of higher debt."

There is no free lunch.

"Adding to the debt stands in the way of sustained economic growth," asserts the Committee. "History has proven that tax cuts don't pay for themselves."

"With debt as a share of the economy higher than any time since just after World War II, this nation needs a long-term budget plan. Unpaid-for tax cuts would make that even more difficult."

I believe President Trump and Members of Congress need to listen to the Committee for a Responsible Federal Budget. They could begin by asking for a list of the $1.6 trillion of tax loopholes that should be closed if there is even $1 trillion of tax cuts.

America must stop spending like a drunken sailor.

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Copyright (c) 2017 Michael J. McManus, President of Marriage Savers and a syndicated columnist. For previous columns go to  www.ethicsandreligion.org. Hit Search for any topic.