Like successful execs, tax reformers should stress character

Bill Knight column for Mon., Tues. or Wed., May 1, 2 or 3

As “tax reform” ideas drop on our heads like bird droppings, I’m reminded of my column from 18 months ago recommending Cubs exec Theo Epstein for Illinois governor. Now, it seems overdue for the administration to adopt his management philosophy for setting tax policy.

Epstein tackles situations (such as a 108-year World Series drought) by using data and stressing character, Tom Verducci reports in his new book, “The Cubs Way.” Explaining in the 375-page hardcover, Epstein says, “Maybe we can be better than anyone else with how we treat our players and how we connect with players.”

If taxpayers are players in Team America, we’re treated poorly and disconnected from the one-page tax-reform summary presented last week by Treasury Sec. Steven Mnuchin (who on Nov. 30 told CNBC, “there will be no absolute tax cut for the upper class”). The plan would increase the standard deduction and let small-business owners pay at lowered corporate rate instead of the personal rate. But it would cut corporate taxes more than half, from 35 to 15 percent and slash taxes on stock holdings and more.

“The sweeping tax plan will make this rigged system even worse, with more massive tax giveaways and more loopholes for banks and billionaires,” says Tim Canova of Progress for All, a grassroots advocacy group resulting from his campaign as a progressive alternative to U.S. Rep. (and DNC chair) Debbie Wasserman Schultz (D-Fla.) “The rest of us will have to make up the difference.”

By cutting taxes to win favors from the 1% (potential campaign contributors), the administration would reduce resources to fund programs people want. U.S. Sen. Sherrod Brown (D-Ohio) told the Washington Post the reform could pass if Congress is willing “to blow a hole in the federal budget and cut a whole lot of things like Meals on Wheels and [Great Lakes] restoration, and then lie about the growth rate of the economy."

Claiming revenue losses would be covered by consumer spending is an old idea suggested in 1974 by economist Arthur Laffer and discredited by conservative and progressive economists. Laffer said letting people keep more of their money sparks economic growth, but George Bush called that “voodoo economics,” and tax cuts in 1981, 2001 and 2003 were followed by huge budget problems.

The administration is reportedly willing to “raise revenue,” but it hasn’t explained how. The ways cold include raising taxes or user fees or go into more debt. Also unexplained are unspecified tax breaks promised to individuals, but the outline proposes dropping all current deductions except charitable donations and mortgage interest (which mostly benefit the prosperous). Also, some taxpayers could become “small businesses” and file at companies’ 15-percent rate instead of the 39.6-percent rate the rest of us pay.

Further, it’s an illusion that everyday Americans need lower taxes. The effective rate (after deductions) for the bottom 80 percent of U.S. households has fallen for decades. Unfortunately, the average income has fallen even farther. The country needs decent jobs, not a bigger divide between Haves and Have-nots.

“The decline in top effective rates has contributed substantially to rising inequality in recent decades,” says Josh Bivens of the Economic Policy Institute, citing economists across the political spectrum such as Thomas Piketty and others, writing in American Economic Journal.

Another unnecessary reform (appealing to the superrich) is eliminating the estate tax (dubbed the “death tax” by the GOP). Now, survivors can receive inheritances of up to $5.49 million tax-free. The non-partisan Tax Policy Center, a joint venture of the Brookings Institution and Urban Institute, says about 2,7 million Americans will die this year, but just 5,200 of their estates will pay this tax – 2/10ths of 1 percent – contributing $19.7 billion to the Treasury.

Meanwhile, the administration says it intends to have “listening sessions” with stakeholders to get their input.

U.S. Sen. Bernie Sanders (I-Vt.), the popular Democratic Socialist, offers his input: “At a time when we have a rigged economy designed to benefit the wealthiest Americans and largest corporations, President Trump’s new tax plan would only make that system worse,” Sanders said. “He would slash taxes for himself and his billionaire friends and significantly increase the deficit, while doing little to help rebuild the collapsing middle class.”

If the administration seeks real reform, it should build on data that show Americans want everyone to pay their fair share, and on solid character in stakeholders at kitchen tables as well as on Capitol Hill.

That would truly help make America great again.