The most obvious defect of the 429-page bill -- which is still very much a work in progress, despite months of behind-the-scenes negotiations -- has aroused the least controversy. The reformers propose to increase the federal budget deficit by $1.5 trillion over 10 years. (So long as the measure adds no more than this to public borrowing, it can pass the Senate by a simple majority.)
Government debt is already on a rapidly rising trajectory because of the demands of an aging population. In addition, the plan includes a variety of phased-in or one-off changes designed to disguise its effect on the long-term deficit. Right now, the plan is designed to deliver a fiscal stimulus to an economy with little or no spare capacity and high public debt. This is fiscal irresponsibility, plain and simple.
Yet the debate in Congress is exclusively concerned with the ever-fluctuating details of how to arrive at this irresponsible result.
The economic core of the plan, as before, is a cut in the corporate tax rate from 35 percent to 20 percent. That change could in fact be part of a good reform -- if the corporate-tax base were broadened enough to limit the loss of revenue, and if personal taxes were adjusted to prevent the overall tax burden from shifting away from the richest households. Judged overall, even with the proposal to retain a top rate of 39.6 percent on the highest personal incomes, the plan offers no such assurance.
Earlier versions have been tweaked, but mainly in an effort to keep revenue losses below the permitted ceiling. Thus, the current draft proposes a new, lower cap on the mortgage-interest deduction -- a good idea, in itself, that offends housebuilders and real-estate agents, among others. It aims to tax the endowment income of big universities -- a bad idea, on the whole, that has others up in arms. The list of such meddlesome interventions, guided by no overarching principle of fairness or efficiency, is endless.
All this began as an effort to simplify an insanely complicated code: Expand the tax base by removing unwarranted deductions and exemptions, then lower rates. The latest round of tweaks, with more to come, pushes in the opposite direction -- toward still greater complexity.
For instance, an earlier proposal would have cut the tax applied to the income of so-called pass-through businesses. This was seen, rightly, as an enormous new loophole in the making. So the bill’s authors hedged around it with extra rules about what types of business and what types of income will be excluded from the provision -- plus, for good measure, different options for business owners to choose in determining how they are treated.
You might imagine that making the U.S. tax code less efficient and more burdensome than it is already would be beyond even Washington’s ingenuity. Actually, judging from the process thus far, Congress is up to it.
--Editors: Clive Crook, Michael Newman.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.
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