We need tax reform, but Trump and House must offer plan fair to all

President Donald Trump and House Speaker Paul Ryan failed to give a huge tax cut to the rich through the health-care overhaul.

Now, they’re about to try again under the guise of tax reform. What they’re selling so far would be another windfall for the wealthy and big business, while offering precious little to the vast majority of Americans.

The president huddled Thursday with his top economic advisers to discuss options. But during the campaign, he signed off on elements of the tax overhaul proposed last year by GOP leaders.

Individual tax brackets would shrink from seven to three, and the highest tax rate would drop from 39.6 percent to 33 percent. Both plans would end the “death” tax, sparing the heirs of family fortunes estate taxes worth $300 billion over a decade. And both would eliminate the alternative minimum tax, which was put in place in 1970 after outrage that the rich used loopholes to avoid paying any federal income taxes.

There’s talk of killing or limiting the deduction for state and local taxes, which would hit hard in California where high earners and even the middle class pay significant state taxes. In 2013, 5.8 million California taxpayers deducted an average of $5,624 from their federal returns because of state incomes taxes.

Though the broad outlines released by Trump’s campaign would be somewhat better for the middle class, the bottom line isn’t that different from the House GOP plan.

While the bottom 60 percent of earners would get tax relief averaging less than 2 percent, the top 1 percent would get a tax cut of 13 percent, the nonpartisan Tax Policy Center estimates. That translates to a savings for the poorest fifth of households of $100 under the House plan and $120 under Trump’s, and a break for the top 0.1 percent of $1.4 million per household under the House plan and $1.5 million under Trump’s.

Corporations would fare well, too. Trump proposes to slash the top corporate tax rate from 35 percent to 15 percent and allow more businesses to pay that lower rate. The House GOP plan would cut the corporate rate to 20 percent and includes a border adjustment tax of 20 percent on imports. Cutting the corporate rates makes sense because research shows that these kind of tax breaks lead to increased hiring.

There are problems with the federal tax code, which is complicated and filled with loopholes. But there are ways to simplify it without an outrageous giveaway to those who need it the least.

Besides being unfair, the tax cuts on the table could blow a big hole in the federal budget unless they miraculously boost the economy. That could be a deal-killer for deficit hawks.

Trump is already fed up with the conservative House Freedom Caucus for stopping his health-care bill, so he may reach out to Democrats. House Democratic leader Nancy Pelosi said in a statement Thursday that there is room for bipartisan tax reform, but not the GOP plan “that hands multi-billion dollar tax breaks to the richest on the backs of the middle class.”

As was the case with health-care reform, if it’s the Trump-Republican version of tax reform or nothing, no change would be better. Let’s see a bipartisan effort instead.

This story was originally published April 2, 2017 at 9:52 PM with the headline "We need tax reform, but Trump and House must offer plan fair to all."