Tax day! And does anybody, other than the obvious suspects, really want a big regressive tax cut?

April 18th, 2017 at 9:28 am

Here’s a useful editorial from the WaPo on a long-time CBPP theme: fully fund the damn IRS, damnit! Stiffing the agency is increasingly a back-door way for R budget cutters to provide an implicit tax cut to their funders:

Attacking the IRS is a particularly expensive way to play to the crowd. It rewards tax cheats at everyone else’s expense. Commissioner John Koskinen estimates that the government loses at least $4 for every $1 cut from the IRS and is losing some $4 billion to $8 billion a year due to inadequate funding.

Which raises the issue of tax “reform,” or more accurately, as I’ve written, tax cuts. When President Trump was elected, I thought that many people were vastly overestimating his administration and Congress’s ability to legislate their agenda, in part because there was no real, organized, coherent agenda.

To be clear, that was often going to be a feature, not a bug. On health care, for example, it’s long been clear that they really have no idea what they want, other than no Obamacare.

But on taxes, I thought, they’re solidly on the same page: cut taxes, mostly for the wealthy, and don’t worry about the deficit (to the contrary–big deficits mean they can argue for cutting entitlements/shrinking gov’t). But this too has turned out to be a heavy lift.

Why? Part of it is, like health care, a lack of policy clarity–understanding, explaining, and arguing about their border adjustment tax sucked a lot of oxygen out of the debate. Surely their funders have to be wondering why in the name of the top 0.1% they’re having endless arguments with economists about potential currency movements in the face of a BAT. “Just cut our damn taxes and be done with it!”

Then–really, now–they started lurching from plan to plan unlike anything I’ve seen in decades of experience with this sort of thing.

Fundamental fairness issues are also in the air. Conservative tax cutters may have overplayed their hand when, in their recent attempt to repeal and “replace” Obamacare, they proposed to cut taxes for the richest of the rich by $600bn (over 10 years) while cutting Medicaid by 25% in 2026. Our research showed that, once it was fully phased in, almost all of the benefits of the earlier House tax cut plan would accrue to the top 1%.

Perhaps, end of the day, they’ll manage to pass a GW2-style tax cut, maybe 1%-1.5% of GDP, that sunsets to meet reconciliation rules. But remember, Bush the 2nd inherited a budget surplus, so even that path could be bumpy given today’s more negative fiscal outlook.

I certainly hope so, re the bumpy path. Not only do I see no compelling economic or distributional rationale for a big tax cut, but I’m not sure that many other people, outside of Congressional Republicans, do either. I think many of us who follow this sort of thing do see a need to simplify the corporate code, fund the IRS, and push back against tax avoidance.

But beyond that, FWIW, my antenna are not picking up a strong signal from the American people that regressive tax cuts is the thing they want their gov’t to be working on. They’d rather have them thinking about jobs and (pretax) wages and they don’t believe, because it’s not believable, that cutting taxes for rich people helps them on that front.

Finally, for those of you struggling with last minute filing, there’s this, from the New Yorker, of course.

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