The Conservatives Have No Clothes: Tax “Reform” Is An Empty Promise


I didn’t begin this morning wanting to write primarily about poorly conceived conservative opinion pieces, but life isn’t about what we want. Marc Thiessen weighed in on the fiscal cliff and urged Republicans to hang tough on tax reform over rate hikes. Unfortunately for Thiessen, the Emperor conservatives have no clothes.

And I don’t just mean conservatives chilling around the Sea of Galilee.

Thiessen explains that the Republicans need to act like Marines and stop contemplating surrender to President Obama’s effort to raise tax rates on the wealthy. The Republican wall of obstruction showed signs of crumbling during the Sunday talk shows. And why wouldn’t it? President Obama and Democrats won a majority of American votes last month by pledging a tax hike and the polls show 60% of people favor higher taxes. That’s enough for cloture!

So what’s Thiessen’s alternative plan?

STEP ONE: Stand your ground on taxes. You’ve already conceded hundreds of billions in new revenue through limiting deductions.

But they didn’t. The tax reform plan offered by Republicans did not specify any deductions being cut or the extent of the cuts. “Limiting deductions” and “closing loopholes” are popular catchphrases, but there is no content. The “hundreds of billions” claim Thiessen fronts is based on an unsupported allegation the Republicans threw in their letter to the White House. Republicans claim their numbers are based on this study from the Committee for a Responsible Federal Budget. The report is a flimsy 9-page write-up with some glaring flaws.

First, it proposes capping itemized deductions at $25,000 for high earners. The report suggests that this could net about 2/3 of the revenue tax increases would net. But this would create a disincentive for the wealthy to give to charity. While garnering more federal income is laudable, private charities tend to rely a lot on rich people and gutting that income stream could net worsen the conditions of poor and working class families in the country. Not exactly a win.

Second, it proposes an interesting option that lowers rates and generates more revenue by (1) taxing capital gains as ordinary income (more or less the dreaded “Buffett Rule”), (2) eliminating the state and local tax deduction for everyone, (3) replacing the mortgage interest and charitable deductions with tax credits. This could well generate big revenue, but find me a single Republican who really wants to enact these changes.

Finally, the report suggests a very weak cap on the value of deductions as income increases. This would suffer from the same drawbacks as the first proposal with the added advantage of raising barely any revenue in the grand scheme of things.

If Obama refuses to compromise, pass legislation extending current tax rates for all Americans. Let Obama reject it and take us over the “fiscal cliff” — and then be prepared to live under the Clinton tax rates while negotiations on tax reform continue. In the short term, Americans may blame you. You can recover from that. What you will never recover from is surrendering your principles and giving up your brand as the party of low taxes and limited government.

Um…Obama wouldn’t even have to touch that because it wouldn’t even hit the Senate floor. But Thiessen’s right that the short term political hit to Republicans over the fiscal cliff is slightly better than the long term hit they’ll get if they lose this fight. Except the reason isn’t “brand damage” but the embarrassment of watching higher taxes have no impact on the economy.

STEP TWO: Go on the offensive. Immediately put forward a plan to fundamentally reform the tax code. You will be able to outbid Obama and the Democrats in any tax-cut fight. And the intellectual groundwork has already been done. During the supercommittee negotiations last year, Sen. Pat Toomey (R-Pa.) put forward a plan to lower rates, raise revenue and limit deductions. Sen. Rob Portman (R-Ohio) has a revenue-neutral corporate tax reform plan that lowers the rate to 25 percent and moves to a territorial system.

OK…put forward a plan to fundamentally reform the tax code. Let America see the specifics and make a determination. In the interim why not return to the system that we know balanced the budget a mere 12 years ago. But the conservatives aren’t going to do that because they know they have no clothes. Here are the details — or lack thereof — of the Toomey proposal. Lacking specifics and regressively targeting the middle class? Yes please!

That red part on the right? Yeah, that’s Rob Portman’s part

Meanwhile, Rob Portman was in charge of the budget for George W. Bush. Taking a balanced budget into the largest deficit in history probably disqualifies you from offering suggestions. But the difference between a 25% corporate tax rate and a 28% corporate tax rate (Obama’s proposal) is negligible. Far more troubling is the “territorial” issue. A territorial corporate tax system allows companies to pay zero taxes on money earned overseas. The logic is that companies currently keep money overseas rather than bring it home and pay taxes on it. The territorial system encourages companies to return money to America by agreeing never to tax it. Given the nature of the global economy where many U.S. corporations are destined to make massive profits overseas, this is basically a tax giveaway. That said, no one wants companies to keep money stored overseas in a tax avoidance scheme. President Obama suggests an unspecified lower tax rate for overseas earnings and tax credits for companies bringing jobs home while cutting tax breaks for offshoring. It may not be perfect but at least it isn’t a plan to completely zero out taxes on a large swath of corporate income.

STEP THREE: Pass your plans. If the president refuses to negotiate and no progress is made by February, inform him that you will attach all or part of your plan to legislation raising the debt limit and pass it in the House. Then do so. Obama will sign it. Here is why:

Unlike with the fiscal cliff, Republicans have all the leverage when it comes to the debt limit. Today, Obama is perfectly willing to go over the fiscal cliff and blame the GOP for the resulting tax increases on the middle class. But when it comes to the debt limit, he does not have that luxury. He can’t default on our debt — the consequences are too catastrophic. So in the end he will cave.

Thiessen may not understand poker. Democrats have already won the war for responsibility — if we go over the cliff because Republicans refuse to raise taxes on the wealthy, it’s the Republicans getting blamed. Why does Thiessen think that this blame will not carry over to defaulting on our debt because Republicans refuse to raise taxes on the wealthy?

Thiessen thinks that Obama will concede when Republicans threaten to default on the debt because doing so would ruin the economy for generations. It should terrify Americans that prominent conservatives continue to believe that single-handedly ruining the economy in order to protect their donors from paying 3% more in income tax is not only an option but admirable. Comparing this strategy to the Marines is the height of dishonor. This strategy is not about “surrendering vs. fighting back” but “surrendering vs. holding guns to the heads of children to negotiate your escape” and that’s not a course of action any of us would recognize as courage.

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