A Bipartisan Tax Reform?
7 Pages Posted: 2 Nov 2015 Last revised: 19 Mar 2016
Date Written: March 19, 2016
If one listens to what Democratic and Republican candidates for president are saying on the campaign trail, the chances for tax reform in 2017 and beyond appear to be minimal. To pass tax reform, a bipartisan approach is essential, because even if we have a Republican president and Republican majorities in both houses, they are unlikely to be able to get major tax reform through the Senate without 60 votes. But the parties seem very far apart on tax reform. Democrats are focused on using the tax system to reduce inequality, and are determined to raise the tax rates at the top of the income distribution. Republicans would like to cut those rates for both individuals and businesses.
But if one pays close attention, it would seem that the potential for a bipartisan deal is there, regardless of who occupies the White House in 2017. The key is that Democrats are primarily focused on individual taxes, and even some Republicans agree that some taxes should be raised for the wealthy (e.g., by closing the “carried interest” loophole, a position supported by both Jeb Bush and Donald Trump.) Republicans, on the other hand, have detailed plans to reform business taxes, some of which can have support from Democrats (e.g., limiting the deductibility of interest to corporations, which both Bush and Trump support).
This situation appears to make a bipartisan tax reform possible: Republicans would agree to raise some rates on the rich (especially on capital gains and dividends, which are concentrated at the top 1% of the income distribution). Democrats would agree to business tax reform, because in a globalized world our businesses suffer from having the highest corporate tax rate in the OECD.
Keywords: tax reform
JEL Classification: H26
Suggested Citation: Suggested Citation