What’s Missing From the Debate About Trump’s Tax Plan

 
 
At the end of the day, tax policy is more about values than dollars. And it's still not too late to have a real discussion over the Trump tax plan, says Matthew Weinzierl.
 
 
by Matthew Weinzierl
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The tax policy we choose as a society reveals our collective values. That is why battles over it are so fierce—and justified. When we debate tax policy, we are debating what kind of society we want and what role we want the government to play in it.

If tax policy reveals our values, what values can we infer from President Trump’s new tax plan? In the past few weeks, a number of commentaries have excoriated or celebrated the plan, but most have relied on conventional wisdom such as “Republicans care only for the rich.”

If we dig a bit deeper, we can identify two core values behind the plan, both consistent with a long tradition from the right of center. Once these are understood, forming an informed opinion on the plan—which will be an important task for Americans in the coming years—becomes possible.

The view from tax plan supporters

First, this tax plan’s supporters believe the free market should be given greater room to run unfettered, while the government’s role in the economy should be diminished. Trimming taxes on high-income households, minimizing the estate tax, and substantially cutting corporate taxes all leave a greater share of market returns in the hands of those who claim them, while cuts to mortgage interest and state and local tax deductions can be seen as efforts to get the government out of the business of distorting prices.

“Discussing values gives the country the opportunity to choose a policy that stands some chance of lasting beyond the next shift in political power”

It’s important to make clear as well that this tax plan also constrains the government in another substantial way that is only now becoming commonly discussed: future spending cuts. Claims that these tax changes will pay for themselves misleadingly suggest that a possible but highly unlikely outcome is the outcome we should expect. An objective appraisal is that the plan will, in fact, increase deficits over the foreseeable future. How will those deficits be paid for? The answer Republicans are increasingly willing to offer is that government spending will fall, especially on entitlements. In other words, this plan is a standard push toward a smaller government and a less constrained market.

Second, the plan’s supporters believe fairness in tax policy depends on how much people pay rather than on how much people end up with. At the heart of this seemingly small distinction is a big difference in how those on the political left and right view society. The left tends to emphasize that we are “all in this together,” and that government is a way to share risk. So whether people end up with a fair share of society’s resources is the test of whether a tax system is fair. To someone who holds this view, the case for more progressive taxation is self-evident, especially in an environment like ours of high and rising inequality.

In contrast, the right tends to emphasize that we are “together by choice,” and the government is a way to share costs. To someone with this point of view, including most Republican lawmakers, the important thing is to have people pay their fair share of taxes, based on a sense of equal sacrifice or on how much they benefit from government activities that allow our economic system to function. This view limits the extent to which resources should be redistributed and argues for a less progressive tax structure, just as we see in the current plan.

Missing in action: debate

Unfortunately, amid all the recent wrangling over rates and deductions, we have failed to debate the aforementioned values that underlie those choices. That is a serious mistake. Discussing values gives the country the opportunity to choose a policy that stands some chance of lasting beyond the next shift in political power. Policy uncertainty is bad for businesses and households, and a partisan process that provides no room for broad debate is bound to increase it. Moreover, and especially important in the current era of divisiveness, such a debate would give us at least a chance to reconcile our differences and find common ground as a nation.

Fortunately, it’s still possible for either side to start a substantive debate over values at any time.

Republicans can make their case that this tax plan represents progress based not on unrealistic optimism but on sincere beliefs about the proper role of government.

Democrats can challenge them not by issuing doomsday projections or questioning their motives but by disagreeing over what truly matters to us as Americans.

These are the debates our country needs and deserves. And because tax policy is always evolving, it’s never too late to start that discussion.

Matt Weinzierl is a professor at Harvard Business School. He served in the Council of Economic Advisors during both the Clinton and George W. Bush administrations.

Related Reading:

Tax Reform is on the Front Burner Again. Here’s Why You Should Care
Why Americans Voted for an Income Tax
Signing at the Top: The Key to Preventing Tax Fraud?

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