US Congress’ Next Big Battle: Tax Reform

As the U.S. stock market hit a new all-time high Wednesday, key U.S. lawmakers staked out core positions for a looming battle that could impact economic performance for decades: reforming America’s complicated and much-maligned tax system.

“Comprehensive tax reform represents the single most important action we can take now to grow the economy and to help middle-class families finally get ahead,” said Senate Majority Leader Mitch McConnell, a Kentucky Republican, adding that Washington has a “once-in-a-generation opportunity” to act.

“For families, we want to make their taxes simpler, fairer and lower. For small businesses, we want to provide the conditions they need to form, invest and grow,” McConnell said.

An object of near-universal ridicule, the federal tax code is thousands of pages long and forces many Americans to hire accountants or attorneys to comply with its vast array of provisions.

President Donald Trump made tax reform a major campaign promise last year, including lowering America’s corporate tax rate, the highest among the world’s major economies. Failure to deliver on what has been a core Republican pledge to voters for multiple election cycles would be a bitter pill for a party still licking its wounds over its inability — so far — to abolish former President Barack Obama’s signature health care law.

While Senate Democrats unified in opposition to repealing Obamacare, many say they are eager to work with Republicans on tax reform so long as certain conditions are met.

“First, don’t cut taxes for the top 1 percent [richest Americans],” said Senate Minority Leader Chuck Schumer, a New York Democrat. “Second, don’t increase the [federal] debt and deficit. And third, negotiate in a fair and open process.”

Opposition to reconciliation

Democrats are objecting to any Republican attempt to pass tax reform though reconciliation, a Senate procedure that sets aside the three-fifths majority commonly required to advance a bill. Under reconciliation, Republicans could approve tax reform using their narrow Senate majority, bypassing Democrats entirely.

Schumer warned that reconciliation would torpedo “bipartisan tax reform before a discussion between our two parties has even begun.”

“Is he [McConnell] closing the door on bipartisanship because he so dearly wants to cut taxes on the top 1 percent?” the minority leader asked. “The wealthy are doing great right now, God bless them.”

For his part, McConnell promised ample opportunities for Democrats to help shape a final tax reform bill.

“Our expectation is for this legislation to move through the committees this fall under regular order, followed by consideration on both the House and Senate floor,” the majority leader said. “There’s a great deal of bipartisan consensus about what ails our tax code, and my hope is our friends on the other side of the aisle [Democrats] will join us in a serious way to address it.”

Revenue-neutral

McConnell has said that tax reform should be revenue-neutral, meaning that any tax cuts would have to be offset by revenue increases in other areas of the federal code. It is widely assumed that Republicans will propose reducing a variety of tax rates paid by wage earners and businesses, while eliminating some tax deductions many Americans use to lower their tax bills.

For decades, some Republicans have argued that tax cuts pay for themselves by stimulating the economy, leading to higher output and more tax revenue. Democrats contend the theory was proven false under the administrations of former presidents Ronald Reagan and George W. Bush, which saw deficits rise after major tax cuts were enacted.
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