The Tax Cuts and Jobs Act of 2017 was a great leap forward in terms of U.S. tax policy. Congress lowered tax rates across the board, with particular emphasis on cutting corporate taxes to make America more competitive with other industrialized countries.
The ensuing growth has gone a long way to changing perceptions of the bill, which before its passage was deeply unpopular, thanks to a disingenuous propaganda campaign waged by the left. Now, though, fatter paychecks and brighter economic prospects are making it clear that Republicans were right all along, and Democrats were simply fear-mongering.
Laudable as the late 2017 reforms may be, the truth is our tax system remains among the world’s most (needlessly) complicated. There is still ample room for reform. President Trump and Congress should not rest on their laurels. They should press on and fix what remains broken.
First, while the Tax Cuts and Jobs Act simplifies taxation for some—leading to fewer people itemizing, for example—the truth is that too many credits and deductions remain. The reason is obvious: tax advantages like these are prized by some, who cling to them as though their lives depended on it, and politicians are loath to disappoint these special interests.
Credits and deductions, though, have the effect of distorting economic and financial decision-making, substituting the judgment of politicians, bureaucrats, accountants, and tax lawyers for the judgment of private citizens and the free market. As painful as it may be in the short term, we should aim to eliminate as many credits and deductions as possible. If feasible, we should institute a flat tax, with a generous personal exemption. In this way, we could theoretically eliminate all credits and deductions and still lower the tax burden for the vast majority of Americans.
Second, we should become more cognizant of the need to balance the federal budget. By some estimates, in the current fiscal year, the budget deficit could top $1 trillion. That is unacceptable. Tax cuts are desirable, yes, but fiscal responsibility is indispensable. Congress made a huge bipartisan mistake with its recent decision to raise spending on defense and domestic programs. Spending hikes need to be offset with cuts elsewhere. Ultimately, moreover, if Congress can’t restrain its impulse to spend money the country doesn’t have, then we should move towards the passage of a balanced budget amendment, which will require rather recommend fiscal prudence.
Lastly, although Republicans should be proud of their tax reform accomplishment—especially after so many in the media and the Democratic Party flatly declared it couldn’t be done—they should also be willing to acknowledge the bill’s manifest flaws. Not only does it leave much important work undone, but it also introduced new problems into our tax system, like the anomalous language in Section 199A, which for some unexplained reason was written to privilege agricultural co-ops over independent businesses. (Agriculture Secretary Sonny Perdue has referred to this as the “grain glitch.”) More federal micromanagement of the agriculture sector (or any sector) is the last thing our country needs. Congress should aim to fix the Section 199A hiccup in the upcoming omnibus spending bill. Lawmakers should rectify other mistakes and oversights as quickly as possible.
Tax reform is a major accomplishment in an era of partisan discord and division. But Republicans should be under no illusion: Americans still shoulder an unacceptably high total tax burden, and still labor under one of the world’s most byzantine and absurd tax structures. Rather than transferring tax advantages from some groups to others, though, our aim should always be to enhance tax freedom for everyone. That’s the recipe for strong and sustained economic growth. It is also the only way to keep the American dream alive and well for future generations.
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Excellent points. But tinkering with the current tax code is sort of like fixing the fuel pump on the Model T we use as our daily driver. It’s still an antiquated, inefficient way to get from point A to B. And at 20 mph, we don’t get to B very fast. Our only saving grace is the rest of the world is also driving old clunker tax systems so we haven’t been passed. Yet.
The flat tax is more like a Camry. Much more efficient than the Model T and less prone to political tinkering. But still Congress won’t be able to fight the urge to tint the windows and put a stupid fin on it.
What we need it an autonomous car, err, tax system. Consumption taxes kind of work that way. The “invisible hand” drives. Ironically, Trump has kind of hit on this with his daffy tariff plan although his is about being punitive rather than productive and efficient. A broad based low tariff on every imported good based on value added would be a good way to offset Model T taxes on work and production. This import Value Added Tax (iVAT) is really just a tax on American consumers of foreign products. If kept low enough, say 5-15%, it would help American producers without killing American consumers.
But more importantly, it needs to be offset by reductions in payroll taxes, income taxes, investment taxes and corporate taxes which severely weigh down our economy. If a iVAT is combined with another consumption tax like a national sales tax or Fair Tax, so much the better. We don’t need our autonomous car towing the Model T. Shifting our entire tax system to one based on consumption rather than production encourages work and investment and discourages consumer debt.