The tax reform outline recently released by the White House is very light on details. As the holes are filled in, here is what should be built on and what needs to be drastically improved.
Right: Addresses Tax Breaks and Loopholes
The plan identifies an area that is ripe for reform. The tax code is filled with exemptions, deductions, credits, and other tax preferences that result in nearly $1.6 trillion in lost revenue each year. They are sometimes referred to as tax expenditures because they are basically spending though the tax code.
The Trump plan calls for eliminating individual deductions, with the exception of those for charitable giving, home mortgage interest, and retirement savings.
All business and individual tax breaks should be on the table for revision or elimination as tax reform moves forward. That would make taxes simpler and fairer.
Wrong: Adds Massively to the Debt
In its current form, the plan would add substantially to national debt that is already on an unsustainable path. A rough estimate from our partners at the Committee for a Responsible Federal Budget (CRFB) pegs the cost of the tax plan at $3 trillion to $7 trillion over a decade, with the base estimate at $5.5 trillion.
That would take the national debt to 111% of the economy in ten years, an all-time record. The current forecast is for debt to reach 89% in 2027.
Adding to the debt will cancel out the economic benefits of lower tax rates over the long run. Studies show that tax reform that reduces deficits produces more growth than reform that does not.
History shows that tax cuts don’t fully pay for themselves. CRFB explains why tax reform needs to be paid for with spending cuts or revenue increases.
President Trump set the tax reform process in motion. Now it’s time to work towards responsible reform that helps to fix the debt, not add to it.
Write Congress to enact sensible tax reform.
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