If each of us can momentarily park our politics and ignore all those puffy-chested critics on MSNBC, Fox and our Facebook feeds, let’s agree on three essential thoughts framing the federal tax proposal that House Republicans floated Thursday:
The basic theme here — lowering American’s personal income tax rates by trimming deductions and credits — is good policy for our economy, today and tomorrow. As for corporations, the new rate would be lower than the one President Barack Obama proposed but would have the same rationale: It would make U.S. employers (including many companies based in Illinois) more competitive globally.
Several of the pre-Halloween frights that animated those TV screamers — They’re coming for your 401(k)! They’ll only help the rich! — proved wrong. This plan would lower middle class families’ taxes, in part by lifting the income ranges to which the various tax rates apply. Until Thursday, none of us had seen those tax bracket break points.
While each of us will find line items that help and hurt us, the cost of this plan should trouble all of us: Over 10 years, its authors acknowledge, it would raise our runaway national debt by $1.5 trillion. That flaw allows opponents of this plan to stand on reasoning more noble than self-interest or partisan politics.
Keep in mind that this is merely the House Republicans’ opening gambit; the next big federal tax plan enacted as initially proposed will be the first. But we did have an election in which whether to reduce or raise federal taxes was a big issue. And now we’re about to have the fight in the trenches that will or won’t end with a bill on the president’s desk.
Here’s how to approach this knock-down, drag-out battle:
A future that mimics the last several years of roughly 2 percent annual economic growth would consign America to weak job creation, persistent budget deficits and, eventually, a declining standard of living. So the question on the table is whether this plan would yield enough growth to raise several boats: more employment, higher personal income and thus deeper rivers of revenue flowing into Washington.
On this policy point as on most others, the know-it-alls of the right and left have the answers. But the record is mixed: Federal tax cuts proposed by Presidents John F. Kennedy, Lyndon Johnson and Ronald Reagan undeniably helped drive economic expansions; tepid growth, by contrast, followed the George W. Bush tax cuts of 2001-03. So you should thank profusely, then ignore, anyone who claims to know the effects this plan would have on growth. Tax policy matters, but so do other factors — monetary policy, demographic changes, new technologies, demand for U.S. exports …
We’re amused by the argument that the current rising economic indicators (and rising stock market) show that no tax cuts created these outcomes; it’s the very prospect of tax cuts since last year’s presidential election that has helped drive this growth.
Between this national debate’s commencement and conclusion, this question of growth should be at the forefront: What’s America’s best estimate of how this (or any) plan would make our economy more robust, drive more hiring and produce more tax revenue?
If you’re the typical Illinois resident, this plan’s tax bracket changes and near-doubling of the standard deduction should help you. And limiting or eliminating many current deductions and credits wouldn’t have much effect on you: Because only about a third of Americans itemize those deductions, they mostly help the affluent.
Raise your hand if limiting the interest deduction on new mortgages to your first $500,000 worth of home loans would send you to the poorhouse. Raise your other hand if you think it’s fair for citizens nationwide to subsidize all of the state and local taxes that high-tax states impose on their residents. (If you’ve raised both hands, you’ve surrendered to the status quo; you won’t be telling Illinois and local officials to slash taxation here because you’ll no longer be able to deduct it all on your federal return.)
Which brings us to those nasty budget deficits and a national debt now north of $20.4 trillion. There’ll be hypocrisy here: Politicians who’ve rarely if ever voted against a spending bill will now posture as debt hawks. As sinners reformed.
But there’ll also be warnings from those of us who have long (and often unpopular) records of urging that Washington live within its means. The nonpartisan Committee for a Responsible Federal Budget noted Thursday that a $1.5 trillion debt hike “amounts to almost $12,000 per household — a steep price passed on to our children.”