Bobo has a question: “Can Elephants Learn From Failure?” He whines that after the health care debacle, Republicans desperately need a win. Moreover, they are massively underestimating how hard tax reform is going to be. There will be a rebuttal from “gemli” in Boston. Mr. Cohen, in “The Offender of the Free World,” says truculent Trump has abdicated responsibility. Europe must step into the void. Here’s Bobo:
The Republican Health Care bill failed because it was a bad bill that had almost no authentic public support. It took benefits away from tens of millions of vulnerable people in order to give tax breaks to the rich few.
When Republicans turn to tax reform, they will start on much stronger ground. The Republican plans, at least in their broad conceptions, are built solidly on the two frameworks that have shaped recent tax reform discussions.
The first is simplification, the idea that a cleaner tax code, with fewer loopholes and lower rates, would foster economic growth. The second is substitution, the idea that the overall rate of taxation is less important than what you tax. The current code taxes income heavily and barely taxes consumption. To increase dynamism and growth, we should substitute taxes on investment with taxes on spending.
The first framework shaped the tax reform of 1986 and is locked in many people’s brains today. But my impression is that economists have come to see the second framework as more important.
The research shows that cutting top marginal rates does not produce as much growth as the supply siders expected. Meanwhile, research by the Organization for Economic Cooperation and Development and others has found that corporate income taxes have a more negative effect on growth than income, payroll or consumption taxes. It’s more important to cut those.
Most rich nations today combine consumption taxes and a low corporate rate. As Kevin Hassett, who’s been mentioned as President Trump’s likely Council of Economic Advisers chairman, has noted, 34 out of the 35 O.E.C.D. nations have VAT or VAT-like consumption taxes. The United States is the only outlier.
The House Republican tax reform bill embraces both frameworks, but it leans on the substitution framework more heavily.
The most exhaustive look at the Republican tax plan I’ve seen was written by David A. Weisbach of the University of Chicago Law School. He notes that the Republican plan would simplify the rates and close a lot of loopholes — the simplification framework — but it wouldn’t radically reshape the taxation of individuals.
Business taxes, meanwhile, would be transformed. The Republican plan cuts corporate rates, allows the immediate expensing of investments and eliminates the taxation of income from sales in foreign countries while raising an import tax, which functions sort of like a VAT. “These changes would go a long way toward shifting the tax system to taxing consumption rather than income,” Weisbach writes.
Moreover, the Republican plan bears some family resemblance to the X Tax, David Bradford’s version of a consumption tax that isn’t necessarily regressive.
So the basic G.O.P. framework is good. There are at least three main problems. The consumption tax rates are too low to raise enough revenue, the whole thing is much more regressive than it needs to be, and the current political climate is probably going to make the bill much, much worse, not much, much better.
After the health care debacle, Republicans desperately need a win. Moreover, they are massively underestimating how hard tax reform is going to be.
Every single loophole in the tax code has a ferocious defender, a fact that has scared off all the recent administrations from attempting tax reform. So even just the loophole closing piece is going to be like Guadalcanal. Raising consumption taxes on top of that — against the ferocious opposition of the retail sector — will be Guadalcanal on stilts.
The Republicans are going into this process from a position of extreme weakness. The first temptation will be to do the easy stuff, which is cutting the taxes, while skipping the hard stuff — closing loopholes and finding substitute revenue sources. The second temptation will be to scale back the whole enterprise so that you can declare victory with a much smaller bill. The third temptation will be to can the border tax, which is associated with Paul Ryan and which the Freedom Caucus already opposes.
By the time legislation is crafted, probably in early summer, the good basic framework could transmogrify into something completely ugly — a bill that explodes the national debt while handing massive benefits to the rich. Then we’d be back where we were with health care reform, with a bill that benefits very few and which no one likes.
Tax reform probably won’t survive if the Republicans try to do it the way they tried to do health care — staying within the lines of Republican orthodoxy while veering over to the extreme right in the hopes of winning the Freedom Caucus. Tax reform will probably only pass with bipartisan buy-in, if there are enough potential yes votes that you can afford to lose some off on the extremes.
Tax reform is one of the few issues where Republican and Democratic thinking overlaps. It’s one of the few ways to significantly boost growth. If Republicans can learn from their errors, they can get this done. If, on the other hand, tax reform fails, the G.O.P. majority is forfeit and Washington will descend to utter dysfunction.
If tax reform fails? [snort] Here’s what “gemli” had to say:
“Malevolent frauds like Paul Ryan and the Freedom (To Die) Caucus demonstrated that they can’t be trusted to pretend they care about the health of the nation, although they might get behind a consumption tax if they thought it was a tax on people who had consumption.
The president—our leader, and the one who exemplifies who we are as a nation—will not even show us his tax returns. He’s said that he’s too smart to pay taxes. His only visible contribution to the economy was the payment of a 25 million dollar fine to compensate for his fraudulent university. I think it was called the School of Hard Knocks.
It doesn’t matter if we’re talking about medical coverage or taxes or anything else. Republicans only want to pass a WealthCare bill. Taxing consumption should be right up their alley, since it will hurt poor people the most. Progressive? Really? Does anyone think for one moment that Republicans will give the little guys who voted for them a break? It’s just not what they do.
So let’s not tax income, or consumption. Let’s tax wealth. If you’re sitting on billions of dollars, every one of those dollars came from someone else’s pocket. We’ve already paid our corporate overlords with decades of low salaries, poor benefits, abandoned neighborhoods, dismal welfare support and crumbling infrastructure. The people who destroyed the economy got bonuses.
Billionaires need to be reminded of where those billions came from. Let’s jog their memory.”
Now here’s Mr. Cohen:
When Donald Trump met Chancellor Angela Merkel of Germany earlier this month, he put on one of his most truculent and ignorant performances. He wanted money — piles of it — for Germany’s defense, raged about the financial killing China was making from last year’s Paris climate accord and kept “frequently and brutally changing the subject when not interested, which was the case with the European Union.”
This was the summation provided to me by a senior European diplomat briefed on the meeting. Trump’s preparedness was roughly that of a fourth grader. He began the conversation by telling Merkel that Germany owes the United States hundreds of billions of dollars for defending it through NATO, and concluded by saying, “You are terrific” but still owe all that dough. Little else concerned him.
Trump knew nothing of the proposed European-American deal known as the Trans-Atlantic Trade and Investment Partnership, little about Russian aggression in Ukraine or the Minsk agreements, and was so scatterbrained that German officials concluded that the president’s daughter Ivanka, who had no formal reason to be there, was the more prepared and helpful. (Invited by Merkel, Ivanka will attend a summit on women’s empowerment in Berlin next month.)
Merkel is not one to fuss. But Trump’s behavior appalled her entourage and reinforced a conclusion already reached about this presidency in several European capitals: It is possible to do business with Trump’s national security adviser, Lt. Gen. H. R. McMaster, with Secretary of Defense Jim Mattis, and with Secretary of State Rex Tillerson, but these officials are flying blind because above them at the White House rages a whirlwind of incompetence and ignorance.
Trump’s United States of America has become an unserious country, the offender of the free world.
The German debt to the United States is vast since the federal republic was crafted from ruin through enlightened American postwar involvement. Germans never forget this. But that debt is not material, something Trump’s lazy, ahistoric little mind cannot grasp. Germany owes the United States no NATO debt. America is not Europe’s defense contractor, paid to deliver services like, say, the caterers at Trump’s Mar-a-Lago resort.
This is not rocket science. As Adam Schiff, a Democratic representative, tweeted about NATO: “Unlike health care, it’s not that complicated.”
NATO is a successful organization dedicated to the collective security of its 28 members, which have pledged to defend each other if attacked and maintain defense budgets to that end. By bringing stability it has contributed enormously to American prosperity. Trump did not discover, as he boasts, that Europeans have been underspending on defense. That has long been an American concern. Germany increased its military spending by 8 percent last year but has not reached the target, set by NATO in 2014, of spending 2 percent of gross domestic product on defense. These are pretty elementary facts.
Yet Trump tweeted: “Despite what you have heard from the FAKE NEWS, I had a GREAT meeting with Angela Merkel. Nevertheless Germany owes vast sums of money to NATO & the United States must be paid more for the powerful, and very expensive, defense it provides to Germany!” And later, in an interview with Time magazine’s Michael Scherer: “What I said about NATO was true, people aren’t paying their bills. And everyone said it was a horrible thing to say. And then they found out.” Trump added, “I got attacked on NATO and now they are all saying I was right.”
Yes, Mr. President, everyone is saying you are right! And they’re saying, wow, you made a BIG discovery about NATO spending! They are also saying there’s an unidentified lying object in the White House.
Trump, as noted above, showed no interest with Merkel in the European Union. The E.U. just marked its 60th anniversary in Rome with vows of indivisible union and renewal. It did so as Theresa May, the British prime minister, prepares to submit Britain’s formal exit demand this week, and just after the French rightist Marine Le Pen, who may soon lead France, met with Vladimir Putin in the Kremlin. Putin is deploying money and propaganda to back Le Pen and fast-forward E.U. unraveling. Trump, as allergic to multilateralism as he is susceptible to autocracy, has welcomed the unstitching of Europe.
It is the hour to stand up for the European Union. Its democratic shortfall, weak external borders and shared currency mistakes have contributed to a political backlash. Less appreciated are the peace and stability it has provided to hundreds of millions of people over generations and the myriad ways — from disappearing cellphone roaming charges to cheap borderless travel — it has improved life for Europeans whose forebears lived in a charnel house. No miracle ever marketed itself so miserably.
Merkel is the personification of the Union’s values; she was just bolstered by a local election victory. Russians have taken to the streets to protest against Putin’s corrupt regime and been brutalized. This is not over. Truculent Trump has abdicated responsibility. Europe must step into the void.