The remaining days of the tax debate is not the time to push for tax reforms that should be part of a more fundamental tax reform - which the country definitely needs. Republicans should take the tax deal as announced and make a lot of noises about this only being the beginning. And then not let any grass grow under their feet as they start laying out the terms of a more effective longer-term set of tax reforms that they want to start pushing next year.
Jim DeMint and his supporters in the conservative movement are making some very valid points in their opposition to the tax deal as announced yesterday: the estate tax is one of the worst forms of federal confiscation and should be abolished, and we shouldn't be adding to the deficit right now.
But major reforms are needed to address these key issues. For now, let's take the victory on the full extension of the Bush tax cuts, complain loudly that they don't go far enough, and then get serious about making serious tax reform a part of a strong Republican party agenda looking to 2012.
It's worth taking a look at where we are right now:
- No taxes will go up on any wage earner in America.
- The estate tax will be 55% on January 1, and 35% if we take the deal. This is only a tax increase if viewed from the present, where we have had a statutory lift on the tax for the present year. It's a tax cut if viewed in terms of what it is statutorily supposed to be on January 1.
- Payroll tax relief of 2% will put more money in people's pockets. Maybe not much, but every bit helps.
And it's important to look at why the current deal falls short.
- The payroll tax is poorly structured and will be unlikely to spur job growth even if it does put a few extra dollars in workers' pockets, as Megan McArdle and others have pointed out.
- The Bush tax cuts never went far enough in the first place. As Thomas Cooley and Lee Ohanian write in today's Wall Street Journal, we tax capital at 17% higher than we did back in the Great Depression. We should have begun the job of cutting our current estimated rate of 37% long ago. So regardless of the current individual rate extensions, we still have these big other problems that will inhibit growth, which in turn creates the jobs that produce the personal income whose tax rates we're currently debating.
The estate tax is one of the most egregious examples of federal overreach. But we've known that for a long time and haven't adequately built support for a full repeal. The GOP should take the deal we have before us and start building an agenda that:
- Lowers tax rates again
- Simplifies the tax code to get rid of the exemptions and deductions that can make up part of the difference in lower rates
- Change the capital gains and corporate tax rates and structures to create more private sector growth
- And, finally, gets rid of confiscating what people have saved for the next generation.
The only point worth fighting about is paying for the unemployment benefits extension with unused funds from the highly ineffective and unpopular stimulus bill. If we can get that, we should call the deal a total victory, get home, and get planning.