While it's too early to know a lot of details about the GOP tax plan, there's already plenty of red flags. Reading through the article (and having heard GOP talk about it), there are themes that come up regularly
Taxes need to be fairer
Everyone can agree that fair is good, but it's usually hard to agree on what fair is. We could try to define it many ways, but canonical examples of fair are:
1. Everyone pays the same amount. This is a great model when we all split a pizza or gas money. However, taxes don't go to a fixed item that everyone is choosing to consume. They go into a general pool and general decisions are made on how to spend it. Given that our federal tax revenues hover around 10% of GDP, translating to about $6000 per person. This is unaffordable for many low-income families. Paying the same is fair, but asking someone to pay more than they make seems unfair, right?
2. Everyone pays the same percent of their income. This is fair in that everyone chips in an amount they actually have. Ignoring deductions for a second, there's still the matter of
3. The more you make, the higher percent (and total) you pay. This is roughly our system today (with famous exceptions for the very wealthy who primarily make income off capital gains). But, what is a fair curve to apply?
Fair is, outside of obviously unfair models, somewhat arbitrary. Pretty much the only thing we agree on is that someone who makes more should pay more ... but there's a ton of details left after that! Saying a code will be more fair is a barely assessable statement. We could write a strong argument that a particular scheme falls into the unfair category, but that's easy enough avoid. After that we're left comparing opinions.
Taxes need to be simpler
While taxes can be pretty complex for those with a lot of dealings, they are quite simple for the basic filer. A 1040A or 1040EZ requires copying values from a W-2, doing a few lines of math, and you're done. About 42% of filers use one of these forms instead of the 1040 long form. The choice of form speaks to, loosely, the amount of financial wheeling and dealing a person is doing. Most of the complexity stems from the way various money streams are treated. That includes special deductions (for mortgage interest, sales tax, charitable donations, tax-sheltered accounts like 401k, HSA, ...), incomes (capital gains, .. ), etc. The GOP has primarily been talking about the number of tax brackets though ... which seems to me the least offensive part of the tax complexities. Regardless of the tax brackets, you scroll to page 78 of this table, find your income, then copy the number from the correct column. We could have 1000 brackets and it'd be an identical process. It's fine to go with 3. Or 7. Or whatever. Just don't talk it up as an actual selling point.
The non-stupid simplification rhetoric speaks, I think, mostly to perceived loopholes in the system. These suggest to many that there's some kind of unfairness or cheat code in the system that only a select few (elites, if you will) get to take advantage of. That the system is stacked against them. There is likely some truth to this: the tax code evolved over decades to amend ambiguous rules for situations, for example. Getting a handle on those rules requires a professional understanding of tax. Sometimes specific tax breaks are given as part of deals. The tax code's goal is to strike a balance between a healthy economy and income for the country. It's actually a relatively pragmatic matter and not really an idealistic one. There are general philosophies, but also choices made to address relatively specific scenarios. However, most of those don't apply to most of us, so adjusting them will make no difference to us (aside from some abstract sense of justice that we didn't really understand to begin with).
One concrete detail we know is there's a plan to roughly double the standard deduction (to 12k for single and 24k for married filing jointly). One sell point is that more people will be able to file simpler returns. That's nice, but probably not the thing to base monetary policy on. The focus here should be on whether this helps people. Trivially it does: those with lower incomes get to keep more money! This is generally seen as compassionate, and "fair". I have no issue with it. However, look a bit further up the income graph: these people save even more. The higher tax bracket someone is in, the more benefit they get from a deduction. There is already an analogous critique of mortgage interest deductions, health savings accounts, etc: the more you make, the more benefit these tax shelters provide. It shifts the landscape to be less "the more you make, the more you pay", though in absolute terms we still meet that requirement. It's potentially "fair", but trending towards the boundary of less fair. Is that fair? Who knows. What the larger deduction definitely does is reduce tax revenue. If 42% of the population files a 1040A or 1040EZ, that's something like 60M returns deducting $300-700B at rates between 10 and 33%. Without getting further into the demographics, assume the middle of those ranges and we're looking at about $100B lost revenue per year. That sounds suspiciously in the ballpark of the $1.5T over a decade the revised tax code is predicted to lose. And the people probably making up the bulk of that pool don't need the tax cuts.
Lowering taxes will boost the economy
This is an age-old argument. Companies will get to keep more money and will of course reinvest it in their operations and employees instead of pay it out as giant bonuses to senior leadership or spend it on share buybacks. The assessment from every impartial expert I've read is that the particulars of this tax plan are a pipe dream. Only with incredibly optimistic projections can this tax cut pay for itself. The actual history here is that healthcare reform (err - healthcare cuts) were supposed to save the money to pay for the tax cuts. GOP healthcare reform has famously fallen apart three times now, so this tax cut really does have to stand on its own. I'm not an expert, so I'll just go along with the assumption that it will not work as presented.
While we can't know the finer details of the plan until something is actually presented to the public, it seems like there's plenty of hot air behind what we already know. Touting trivial points and misleading policy decisions is not the way to do serious, actual, tax reform. Reality has this great way of winning in the long run; the people putting this plan together need to respect that fact.
Taxes need to be fairer
Everyone can agree that fair is good, but it's usually hard to agree on what fair is. We could try to define it many ways, but canonical examples of fair are:
1. Everyone pays the same amount. This is a great model when we all split a pizza or gas money. However, taxes don't go to a fixed item that everyone is choosing to consume. They go into a general pool and general decisions are made on how to spend it. Given that our federal tax revenues hover around 10% of GDP, translating to about $6000 per person. This is unaffordable for many low-income families. Paying the same is fair, but asking someone to pay more than they make seems unfair, right?
2. Everyone pays the same percent of their income. This is fair in that everyone chips in an amount they actually have. Ignoring deductions for a second, there's still the matter of
3. The more you make, the higher percent (and total) you pay. This is roughly our system today (with famous exceptions for the very wealthy who primarily make income off capital gains). But, what is a fair curve to apply?
Fair is, outside of obviously unfair models, somewhat arbitrary. Pretty much the only thing we agree on is that someone who makes more should pay more ... but there's a ton of details left after that! Saying a code will be more fair is a barely assessable statement. We could write a strong argument that a particular scheme falls into the unfair category, but that's easy enough avoid. After that we're left comparing opinions.
Taxes need to be simpler
While taxes can be pretty complex for those with a lot of dealings, they are quite simple for the basic filer. A 1040A or 1040EZ requires copying values from a W-2, doing a few lines of math, and you're done. About 42% of filers use one of these forms instead of the 1040 long form. The choice of form speaks to, loosely, the amount of financial wheeling and dealing a person is doing. Most of the complexity stems from the way various money streams are treated. That includes special deductions (for mortgage interest, sales tax, charitable donations, tax-sheltered accounts like 401k, HSA, ...), incomes (capital gains, .. ), etc. The GOP has primarily been talking about the number of tax brackets though ... which seems to me the least offensive part of the tax complexities. Regardless of the tax brackets, you scroll to page 78 of this table, find your income, then copy the number from the correct column. We could have 1000 brackets and it'd be an identical process. It's fine to go with 3. Or 7. Or whatever. Just don't talk it up as an actual selling point.
The non-stupid simplification rhetoric speaks, I think, mostly to perceived loopholes in the system. These suggest to many that there's some kind of unfairness or cheat code in the system that only a select few (elites, if you will) get to take advantage of. That the system is stacked against them. There is likely some truth to this: the tax code evolved over decades to amend ambiguous rules for situations, for example. Getting a handle on those rules requires a professional understanding of tax. Sometimes specific tax breaks are given as part of deals. The tax code's goal is to strike a balance between a healthy economy and income for the country. It's actually a relatively pragmatic matter and not really an idealistic one. There are general philosophies, but also choices made to address relatively specific scenarios. However, most of those don't apply to most of us, so adjusting them will make no difference to us (aside from some abstract sense of justice that we didn't really understand to begin with).
One concrete detail we know is there's a plan to roughly double the standard deduction (to 12k for single and 24k for married filing jointly). One sell point is that more people will be able to file simpler returns. That's nice, but probably not the thing to base monetary policy on. The focus here should be on whether this helps people. Trivially it does: those with lower incomes get to keep more money! This is generally seen as compassionate, and "fair". I have no issue with it. However, look a bit further up the income graph: these people save even more. The higher tax bracket someone is in, the more benefit they get from a deduction. There is already an analogous critique of mortgage interest deductions, health savings accounts, etc: the more you make, the more benefit these tax shelters provide. It shifts the landscape to be less "the more you make, the more you pay", though in absolute terms we still meet that requirement. It's potentially "fair", but trending towards the boundary of less fair. Is that fair? Who knows. What the larger deduction definitely does is reduce tax revenue. If 42% of the population files a 1040A or 1040EZ, that's something like 60M returns deducting $300-700B at rates between 10 and 33%. Without getting further into the demographics, assume the middle of those ranges and we're looking at about $100B lost revenue per year. That sounds suspiciously in the ballpark of the $1.5T over a decade the revised tax code is predicted to lose. And the people probably making up the bulk of that pool don't need the tax cuts.
Lowering taxes will boost the economy
This is an age-old argument. Companies will get to keep more money and will of course reinvest it in their operations and employees instead of pay it out as giant bonuses to senior leadership or spend it on share buybacks. The assessment from every impartial expert I've read is that the particulars of this tax plan are a pipe dream. Only with incredibly optimistic projections can this tax cut pay for itself. The actual history here is that healthcare reform (err - healthcare cuts) were supposed to save the money to pay for the tax cuts. GOP healthcare reform has famously fallen apart three times now, so this tax cut really does have to stand on its own. I'm not an expert, so I'll just go along with the assumption that it will not work as presented.
While we can't know the finer details of the plan until something is actually presented to the public, it seems like there's plenty of hot air behind what we already know. Touting trivial points and misleading policy decisions is not the way to do serious, actual, tax reform. Reality has this great way of winning in the long run; the people putting this plan together need to respect that fact.
