Tax Reform: Republicans Abandon Their Own Ship

Robert Borosage

Remember that Republican promise on comprehensive tax reform? Well, never mind.

For years, Republicans have called for comprehensive tax reform that would offer lower rates paid for by closing loopholes. They’ve rejected any effort to close obscene dodges in the tax code, arguing they had to be part of comprehensive tax reform. For years, from the Romney campaign and the Ryan budgets to endless stump speeches, they promised to lower rates paid for by what became known as the “magic asterisk” – details on what loopholes get eliminated to come later. Did they really have the stomach to take on the lobbies that would mobilize to protect their piece of the tax code?

Well, now we know. When Rep. Dave Camp, Republican Chair of the House Ways and Means Committee, unveiled comprehensive tax reform three years in the making, Republicans ran for the exits.

Senate leader Mitch McConnell announced, “I have no hope for that happening this year.” House Speaker John Boehner did his imitation of a five-year-old, muttering “blah, blah, blah” when asked on about the details of the Camp reform, saying that this was only the “beginning of a conversation, a discussion draft.”

That’s the Republican position: Comprehensive tax reform, flatter, simpler lower taxes, centerpiece of the Republican growth agenda – ah, never mind.

What did Camp’s bill contain that so rattled Republicans? For the most part, he followed the Republican partisan playbook – bringing the top rate down to 25 percent, ending the exemption for state and local taxes that would hurt higher tax blue states like New York and Massachusetts, limiting the tax break for employer based insurance, even cruelly lowering the Earned Income Tax Credit for the lowest wage workers.

But that wasn’t enough to pay for the lower rates. He had to create a third rate – 35 percent – for the rich (over $400,000). He would levy a special tax on the biggest banks and insurance companies – those with over $500 billion in assets, essentially taxing them on the risk they pose to the economy. He would hit multinationals with a (small) tax on the $2 trillion they have stashed abroad to avoid taxes, while transitioning to a new (wrong-headed) scheme. He’d limit accelerated depreciation and more. These all echo proposals made by Barack Obama, so no wonder Republicans immediately jumped ship.

So now we know the Republican promises on tax reform are simply hot air. But the biggest outrages in the Republican posture aren’t in the details but in the assumptions. Consider three of them:

1. Corporations will contribute not one cent to meeting America’s challenges

For corporations, shared sacrifice is for suckers. Camp’s corporate reforms – lowering rates from 35 percent to 25 percent and closing loopholes – are designed to be “revenue neutral.” American corporations face the “highest corporate tax rate in the industrialized world,” he argues, and lowering them would make America more “competitive.”

In reality, as a new report from Citizens for Tax Justice shows:

Most profitable U.S multinational corporations actually pay higher effective tax rates in the foreign countries where they do business than they pay here in the U.S.” Looking at the last five years, profitable Fortune 500 companies paid a rate of 19.4 percent on their profits, with a third paying less than 10%, and companies like General Electric, Verizon, Boeing and others paying no U.S. income taxes at all over the five-year period. And corporations contribute a lower percentage of federal revenue in the US than corporations in other industrial nations.

Calling for “shared sacrifice,” Washington has cut food stamps, Head Start, home heating for the elderly, aid to education, Medicare, and pushed for cuts in Social Security. Yet somehow corporations shouldn’t pay a penny more.

In reality, America has a pressing and growing public investment deficit. We aren’t doing even the minimum to modernize our infrastructure – from roads and mass transit to sewers and clean water. We aren’t providing the basics in education – from preschool to affordable college. We are cutting research and development, when we should be expanding it if we hope to succeed as a higher wage economy. Social Security needs to be expanded, not cut back. Current budgets project even deeper cuts across the board to levels not seen since the 1950s.

Comprehensive tax reform should generate revenue to pay for the investments we need. “Revenue neutral” corporate tax reform is a scandal, not a solution.

2. Simple and flat are synonyms.

Republicans like Camp vamp about a tax code that is “10 times the size of the Bible with none of the good news.” They champion a simpler, flatter tax code that will make doing taxes easy. Everyone likes the idea of a simpler tax code (until they see what tax exemptions are eliminated). But simpler and flatter are not synonyms.

As inequality reaches Gilded Age extremes, we need a tax code that is simpler and steeper, not flatter. That is, one that raises taxes on the wealthy, while eliminating complex tax dodges and loopholes. The Republican promise has been to move to two tax rates – 25 percent and 10 percent. Camp, struggling to pay for this, adds a third at 35 percent for income earners over $400,000.

But while inequality has grown between the 1 percent and the rest of us, the true extremes have come in the soaring wealth and wages of the very rich – the millionaires and billionaires who capture more and more of the nation’s income. Any sensible tax reform would require the super wealthy to pay more in taxes. The Congressional Progressive Caucus budget, adopting a proposal made by Sen. Bernie Sanders and Rep. Jan Schakowsky, would levy progressively higher rates on those earning over a million a year.

When you hear a politician calling for a “flatter, simpler” tax code, check to make sure your wallet is still there.

3. Investors should pay lower rates on their income from wealth than workers on their wages from work.

In today’s tax code, workers pay a higher rate of taxes on their wages than investors do on the income from their investments. The lower rate on capital gains and dividends is an enormous giveaway to the wealthy, for most Americans get their income from work, not from wealth. This tax break is a good part of why former Massachusetts governor Mitt Romney can end up with a tax rate that is lower than that of his secretary. It is also what helps to keep accountants and tax attorneys employed, inventing new ways to paint earnings as investment income rather than salary. 

Camp’s “simpler, flatter” tax reform protects the dodge, excluding 40 percent of investment income from taxes altogether. With that concession, comprehensive tax reform is neither comprehensive nor reform.

Pulling the Curtain

Like Toto pulling the curtain that exposes the Wizard of Oz, Camp’s proposal exposes the big lie at the center of the Republican agenda. He details what it would take to lower rates and sustain revenues. He’s included some progressive ideas – like the bank tax – as well as reactionary ones – like his giveaways to multinationals stashing profits abroad and investors clipping coupons at home.

It doesn’t raise the revenues we need. It doesn’t make the tax code more progressive or much fairer. But it pulls the curtain away from the Republican promise and fills in the magic asterisk – and reveals a simple fact: Republicans were never serious about the centerpiece of their own agenda.

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