Are Democrats Suckers For Holding Their Own To High Standards?

In 1986, President Reagan signed the largest overhaul of the U.S. tax system since the New Deal. The law simplified the tax code and substantially reduced individual rates for the second time in Reagan’s presidency—the top rate coming down to 28 percent from 50 percent. When Reagan had appealed for reform in a televised address in 1985, Rep. Dan Rostenkowski of Chicago gave the Democratic response. He urged viewers to support the reform by writing letters to his office—and more than 75,000 did. The final bill received votes from 176 House Democrats, then in the majority, and 33 Senate Democrats.

We remember those days, and they didn’t feel all that bipartisan at the time. But the personal acrimony of our political life had not yet become chronic, and America had a gifted leader in the White House.

For the last three decades, any effort by Republicans to reform the tax code or reduce taxes has generated a rote response from Democrats: You’re favoring the rich and hurting the middle class. It’s a tired and tendentious accusation, but it’s rooted in a fundamental disagreement about the purpose of tax reform. Republicans think it is to spur overall economic growth, and since the wealthier pay more in taxes both as individuals and business owners, so they will tend to benefit more from any large-scale tax reform. Democrats believe the purpose of tax reform is to make things easier for certain preferred earners; they show little or no concern for overall economic growth.

The House passed the GOP tax reform bill last week by a vote of 227 to 205—13 Republicans and every Democrat voted “no.” The response from the opposition was utterly predictable. The bill is “another example of Republicans prioritizing the wealthy over the middle class,” thundered minority whip Steny Hoyer of Maryland. (Hoyer voted “no” on the 1986 act, too, but did so reluctantly, he said, and without the full-throated denunciations.)

Of course, if you treat the tax bill as a pie and ask who gets the biggest piece, you’ll conclude that corporations benefit more than middle-income individuals. That’s because the bill passed by the House—like its Senate counterpart—reduces individual tax rates only slightly but reduces the corporate rate from 35 percent to 20 percent, the lowest rate since before the Second World War. Companies benefit, yes. But so will everybody else. Bringing U.S. corporate taxation in line with that of our global peers will spur the sort of broad-based growth that the Obama administration’s central planners could never achieve and that will benefit middle-income families quite as much as “the wealthy.”

Both the bill passed by the House and the separate one before the Senate get rid of an array of exemptions and deductions—that’s what reform bills are supposed to do—and some of these hit middle-income earners. Among them: the elimination of the deduction for payment of state and local taxes. The deduction was always a favor to high-tax states, a way to shield them from the consequences of their own bad policies and force other states’ taxpayers to make up the difference. But both the House and Senate bills include commensurate breaks for those same middle-income earners. The House bill nearly doubles the standard deduction and increases the child tax credit from $1,000 to $1,600 per child (the Senate version increases the credit to $2,000).

Neither bill’s reform components compare to the 1986 act—the tax code will remain a mess, and paying one’s taxes will still feel like a bewildering quest in search of deductions. But the House bill, at least, contains some needed simplification: It cuts the number of brackets from seven to four, abolishes the estate tax, and gets rid of arbitrary breaks for such things as medical expenses, student-loan interest, and rehabilitating a historic home.

Democrats are complaining that there were no hearings on the bill. We’re sympathetic to their concerns, and it’s beyond dispute that the process hasn’t exactly been the kind of deliberation the Founders imagined. But Democrats have known what’s in this plan for months. The House bill passed quickly and easily. The Senate bill will not. Republicans can only lose two votes, and members are already balking.

Ron Johnson of Wisconsin has said he won’t support the bill unless changes are made to benefit small businesses—so-called pass-through entities that pay their taxes at the individual rates. The Senate bill includes an elimination of the individual health insurance mandate, the linchpin of the Affordable Care Act, and Maine’s Susan Collins believes this provision “complicates” things. Senators from high-tax states are worried about the elimination of those precious deductions for state and local taxes. And outgoing members Jeff Flake (R-Ariz.) and Bob Corker (R-Tenn.) are worried about the deficit.

It’s guaranteed that not a single Democrat will vote for the Senate bill. But there’s no reason Democrats should object to reducing the corporate tax rate, which is almost the world’s highest. The individual reductions are small in comparison to the Reagan-era cuts. And what are Democrats’ objections to the simplifications? Left-liberal doctrine does not hold that tax codes should be riddled with favors for groups with the best lobbyists.

If the tax reform bill gets signed into law and the corporate rate drops by 15 points, American companies will expand and hire, benefiting a great many Americans. Democrats in 1986 would have at least understood the point, even if in the end they voted the other way. If only we could return to the rancor and partisanship of 1986.

Update, November 22, 2017: An earlier version of this editorial suggested that Senator Corker has not been a consistent deficit hawk. He has. We regret the error.

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