I’d love to see a tax code that rewarded investment and discouraged consumption. That would mean cutting taxes on earnings but raising revenue through a progressive consumption tax. I’d love to see a tax code that punished pollution but encouraged social cohesion.
Every tax plan is a social vision and a statement of values. The social vision embedded in the House Republican tax plan is straightforward: to take money away from affluent professionals in blue states and to pump up corporations as the engine for broad economic growth.
Or to put it more bluntly, Republicans think the whole country would be better off if we take money away from the Democrats’ rich people and give it to their own (more productive) rich people.
The plan raises taxes on affluent professionals in blue states in several ways. First, it caps the mortgage interest deduction at loan principal of $500,000 instead of $1 million. According to an analysis by Christopher Ingraham at The Washington Post, only about 2.5 percent of Americans are paying off mortgages on homes valued over $500,000. These are mostly in places like California, New York, Boston and Washington, D.C.
Second, the Republican plan cuts the deduction for state and local taxes. In 2014, according to The Economist, nearly 90 percent of the benefit from this deduction flowed to those making more than $100,000 a year. Once again, this tax hike hits mostly those in high-tax blue states.
Third, the bill taxes investment income earned by private universities with at least 500 students and assets not directly tied to educational objectives of more than $100,000 per student. It imposes a 20 percent excise tax on nonprofit executives who make more than $1 million.
This is the beginning of the full-bore Republican assault on the private universities, which are seen as the power centers of blue America — rich, money-hoarding institutions that widen inequality and house radical left-wing ideologies.
Fourth, the bill preserves high top marginal tax rates on individual income and even raises rates in some cases on the very rich. Over the past few decades when Republicans have talked about tax reform, they have generally talked about sharply cutting the top marginal rate to 25 percent or even 15 percent. But this plan keeps the top rate at 39.6 percent. And then it throws in some peculiarities. As The Wall Street Journal noted, under the plan a married couple would face a 45.6 percent top rate on earnings between $1.2 million and $1.6 million.
These changes could leave the rich paying an astonishingly high percentage of their income in taxes. Scott Sumner of EconLog calculates that when you throw in state and local taxes, rich Californians would face a tax rate of 62.7 percent.
Republicans would take the revenue from these tax hikes (and much more) and they would use it to lighten the load borne by corporations.
The intellectual case for general corporate tax reform is strong. Countries across the world have been cutting corporate rates. The United States now has the highest corporate rates in the Organization for Economic Cooperation and Development and the third-highest rates in the world. Cutting those rates would attract investment, unlock money trapped abroad and increase wages for many families. Economists vary widely in their estimates, but Larry Kotlikoff of Boston University estimates, on the high end, that a lower corporate tax rate could increase working-household income by roughly $3,500 annually.
None of this is to say that the Republican plan is worth supporting. I personally oppose it because of the way it explodes the deficits. Second, the level of largesse to corporate shareholders is frankly ridiculous. It piles one corporate tax cut on top of another like piling a chocolate sundae on top of chocolate cake on top of a Toblerone bar.
This is not a column about the workability or advisability of this or that plan. This is a column about the sort of social vision that serves as a predicate for that plan.
The Republicans have a social vision. The Republican vision is that the corporate sector is more important to a healthy America than the professional and nonprofit sector. The Republican vision is that companies that thrive in the red states, like manufacturing and agriculture, are more important for the country than the industries that thrive in blue states, like finance, media, the academy and the movies.
What, by contrast, is the Democratic vision? Are Democrats going to spend the next few months defending the mortgage interest deduction and other tax breaks for their own rich?
It could be that economic policy is becoming tribal just like everything else in our politics. In that world, parties use their time in power to nakedly shift the tax code for the benefit of their own donors.
It would be nice if our tax code wasn’t red or blue but distinguished between social goods and social bads. I’d love to see a tax code that rewarded investment and discouraged consumption. That would mean cutting taxes on earnings but raising revenue through a progressive consumption tax. I’d love to see a tax code that punished pollution but encouraged social cohesion. That would mean taxing carbon but increasing tax credits for working people and families with children.
You may or may not like my vision, but it’s more elevated than the visions that are now emerging, which are a dressed-up version of the spoils system: more money for my political friends and less for my political foes.