Judd Gregg: Putting SALT in the wound on tax reform

Tax reform is the last train leaving the station before the election cycle kicks off.

To date, the record of President Trump and this Congress on the business of doing things — either fulfilling the commitments made during the last election campaign or enacting items that people see as constructive — is, to be kind, abysmal.

For the president and this Republican Congress, tax reform is the only remaining legitimate opportunity to claim the mantle of governing well, and on behalf of the people.

{mosads}Given all this, why would they start out with such a tepid and self-destructive proposal as the one laid out by the administration and the congressional leadership last week?

The goal of tax reform should be to create greater economic activity by making our progressive tax system fairer, simpler and conducive to greater productivity and more effective investment.

Our tax laws are absurdly complex. They cause capital to be invested primarily in order to avoid taxes rather than to generate economic growth.  

In addition, numerous deductions and exemptions are truly special interest giveaways wedged into the tax laws over the years as a result of effective lobbying by their eventual beneficiaries.

The Democrats will of course proclaim, with the support of their press acolytes, that any tax reform proposed by the Republicans benefits the rich and short-changes everyone else. 

This is simply a mantra of the political playbook of the left, which now dominates the Democratic leadership agenda in Congress. 

They are not going to participate in any effort at tax reform that would be constructive and bipartisan, since to do so would be to risk losing the moral high ground, as they see it.

Republicans will see opposition rather than cooperation from the Democratic leadership in Congress, regardless of what specific course the GOP pursues. This is unfortunate. But it is also reality.

Thus, Republicans need a tax-reform bill that does what should be done. 

The proposal brought forward by the White House and the Republican leadership consists of a bunch of warmed-over leftovers from those who think they must nuance tax reform to make it less vulnerable to attacks from the left, The New York Times and NPR. 

Placating the left is never good policy for Republicans.

If they are going to do a single-party tax-reform bill using reconciliation, make it bold, make it conservative and make it have the right stuff to drive economic growth and create jobs.

A top individual rate of 35 percent, and possibly a 39 percent rate, as proposed in the White House plan, is absurd.  

The top Reagan-Rostenkowski rate was 28 percent. The top Simpson-Bowles rate was 25 percent. The top Wyden-Coats rate was 26 percent. This was all done in a revenue neutral structure while maintaining the progressivity of the tax system.

To put forth a top rate of up to 39 percent is not tax reform. It is more of the same.

Then there is the pay-for needed to obtain this tentative tax reform. It is all laid at the feet of the repeal of the state and local tax deduction, also known as SALT.  

One obvious, but ignored, lesson of tax reform history is that everyone’s toes must be stepped on in order to pay for rate reductions and accomplish simplification.

The burden for balancing the books on revenue-neutral tax reform cannot be placed solely on reducing or eliminating one deduction. To cite an old New Hampshire adage, “you cannot get there from here” using only one deduction.

Even though the SALT deduction is an attractive target, because it is a deduction that forces low-tax states like New Hampshire to subsidize the profligateness of high-tax states like California, it still is not a viable approach. 

If tax reform is to be accepted, it needs to have some scent of fairness about it. Fairness requires that everyone is in the boat together when it comes to having deductions and exemptions cut or curtailed in order to pay for rate reductions.

The best way to accomplish this balance is not to pick on specific deductions, as this brings into play too many constituencies of opposition. Rather it is to take the approach proffered by Mitt Romney when he ran for president (as a Republican, remember?). This approach caps the deductions at a percentage of a taxpayer’s income.

It is a simple, understandable approach. 

Repealing SALT only, or radically reducing it, is neither good tax reform policy nor good politics, especially for those Republicans from high-tax states. 

A percent-of-income deduction is good policy and good politics.

Republicans are only going to get one shot at this effort to do something right, it seems.  

It is time to reset their goals in tax reform, make it significant and change the dynamics of the debate. 

It is time to draw bright lines differentiating between tax laws that are arcane, excessively complex, job killing and unfair, on one hand, and a tax structure that actually does simplify the law, makes it fairer and greatly incentivizes people to be productive, on the other.  

The White House and the Republican Congress need to stop being so darn tentative about tax reform and lowering rates. 

They can and should seize the opportunity and claim their own high ground by promoting reform that gives the nation economic growth and fairness.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.