For months, Donald Trump has used “tax cuts” and “tax reform” interchangeably, because he apparently believes they mean the same thing. As far as the president is concerned, if Republicans create massive tax breaks for the wealthy and big corporations, they’ve necessarily “reformed” the federal tax code.
Perhaps now would be a good time for a refresher.
Traditionally, policymakers create various tax breaks, incentives, loopholes, credits, and giveaways, for a variety of purposes, which end up creating a cluttered and consequently complex system. The point of tax reform, in a conceptual sense, is to simplify: by closing loopholes and eliminating various politically motivated tax treats, the overall system, in theory, should be fairer and ultimately better.
Which is precisely why it’s ridiculous to describe the current Republican scheme as “reform.” Bloomberg Politics had an interesting piece last week:
Lawmakers who sped a bill through the U.S. House last week may have handed a few more goodies to Wall Street’s wealthiest than they realize.
Investors in billion-dollar hedge funds might be able to take advantage of a new, lower tax rate touted as a break for small businesses. Private equity fund managers might be able to sidestep a new tax on their earnings. And a combination of proposed changes might allow the children and grandchildren of the very wealthy to avoid income taxes in perpetuity.
These are some of the quirks that tax experts have spotted in the bill passed by the House on Nov. 16, just two weeks after it was introduced.
Ordinarily, one might expect a genuine attempt at tax reform to identify these “quirks” and eliminate them. Republicans, on the other hand, are moving forward on legislation that creates new “quirks.”
Vox’s Ezra Klein had a related piece this morning, explaining that the Senate Republicans’ tax plan “is thick with obvious loopholes that will do little for the economy but will act as a full-employment program for tax lawyers.”
Other loopholes abound. There’s a giant shortcut for businesses that make less than $100 million and want to shelter their profits overseas. There’s a bizarre allowance for businesses to deduct both their expenses and the interest on the debt they take on, leading to potentially negative tax rates on new investments. A list like this could go on: This New York Times report identifies some other apparent loopholes, and remember that there are many we don’t know about yet because tax lawyers haven’t found them yet. But they will.
The irony is there are few government agencies Republicans trust less than the IRS, but for this legislation to work, the IRS would have to be inhumanly omnicompetent at detecting tax fraud.
A variety of phrases come to mind when describing the GOP gambit – some of which are probably inappropriate for a family blog – but “tax reform” isn’t one of them.
It’s likely some Republican pollster conducted a focus group and found that people like the phrase, at least in part because it’s vague enough that many won’t know what it means.
But in every sense that matters, the plan championed by Trump and his allies isn’t tax reform. It’s the opposite.