Have Republican Tax Writers Lost the Plot on Tax Reform?

By IPI President Tom Giovanetti.  House Ways & Means Committee Chairman Kevin Brady says he plans to release his detailed tax reform legislation on November 1. Its not fair to judge a tax reform plan that hasnt been released yet but our overall excitement is tempered by a number of concerns. What could possibly temper our enthusiasm for a 20 percent corporate income tax rate? Yes its true that a rate that low covers a multitude of sins. But its very easy to lose track of the core intent of tax reform when negotiating with various interested parties and trying to minimize revenue losses with pay fors. And what should be the core intent of tax reform? Increasing private sector investment because thats what drives economic growth as we have argued for decades. A lower corporate rate should in itself encourage higher levels of investment. But its possible that other provisions in the tax reform could actually work to oppose investment and reduce the impact of the lower corporate rate. So what happens when a tax reform plan ends up containing elements that actually discourage investment? It tells you that the people writing the plan have lost the plot. And how will we know if they have lost the plot?

• If the plan discourages retirement savings for workers such as restrictions or added complications for 401ks that will discourage rather than encourage investment.
• If the plan restricts a businesss ability to deduct interest expenses that will discourage rather than encourage investment. Weve previously written that if a business cant finance investment it doesnt do much good to allow them to deduct investment.
• If the plan contains some sort of global minimum tax for U.S. corporations that will be something much less than a true territorial tax system and will still at the margin encourage corporations to keep profits overseas rather than repatriate them. That will work against maximizing domestic investment.
• If the plan adds on an optional high fourth tax bracket for high income earners such as a millionaires tax that will discourage investment since it is precisely the wealthy and high income earners who have the most to invest. Such a tax also has the distinct disadvantage of being subject to increased rates and lower thresholds when say a party with a different view of taxation comes to power.

Unfortunately all of these elements are reportedly in discussion as part of the soon-to-be-released plan. Hopefully the tax writers havent lost the plot on tax reform. Todays TaxByte was written by IPI President Tom Giovanetti.