Republicans Take Important First Step Toward Tax Reform

Republicans’ push for fundamental tax reform moved one step closer to reality last week with the Senate’s passage of the budget resolution.

By passing the budget measure, Republicans have created a vehicle that enables them to use a procedure called “reconciliation” to pass tax reform. The budget resolution provided reconciliation instructions to the Senate Finance Committee allowing them to decrease revenues by up to $1.5 trillion over the next 10 years, money that could remain in the pockets of Americans.

“Tonight, we completed the first step toward replacing our broken tax code . . . We have a once-in-a-lifetime opportunity to replace a failing tax code that holds Americans back with one that actually works for them,” Senate Majority Leader Mitch McConnell (R-Ky.) said following the 51-49 vote.

The budget was much more than just a parliamentary maneuver. According to the Congressional Budget Office analysis, the Senate proposal would lead to a $424 billion budget deficit in 2027, more than a trillion less than is projected under current law.

Those savings are achieved by reducing non-defense discretionary spending by $632 billion over the next 10 years. More importantly, it pushes for reforms to Medicare and Medicaid, which are the two biggest drivers of spending and debt (in addition to interest being paid on the debt). Here, the budget proposes savings to Medicare’s baseline of $473 billion over the decade and about $1 trillion from Medicaid, which would place both programs on a more sustainable course for future generations.

Nevertheless, the real headline here is Republicans move one step closer to fulfilling their tax reform promise. Among the budget’s provisions was an amendment that paved the way for the House to adopt its version of the budget, which would sidestep the long, and potentially grueling exercise of creating a conference committee to hash out the differences between the two policy documents.

“I applaud the Senate for passing a budget,” Speaker Paul Ryan (R-Wis.) said in a statement. “This action keeps us on track to enacting historic tax reform that will mean more jobs, fairer taxes, and bigger paychecks for American families. We want Americans to wake up in the new year with a new tax code, one that is simple and fair.”

The House is likely to take up the budget as early as next week, which would then give Republicans several months to tackle tax reform. And frankly, that’s when the truly difficult work begins.

The House and Senate committees will each be responsible for writing versions of the legislation, each working off of the tax reform framework that was released last month. Even though there is broad agreement on the principles and the broad policies, the devil still lurks in details like how much to increase the child tax credit and how to deal with a slew of politically sensitive tax deductions, like the state and local deduction.

But Republicans are well aware of how difficult the road is ahead of them. They’re also fully cognizant that this is perhaps a once-in-a-generation opportunity to make America more competitive and make Americans more prosperous. David Bahnsen, writing in National Review, explains the urgency:

The catalyst for 2017/18 tax reform is a broken tax code, and that brokenness is most evident in two places: A brutally non-competitive business tax code that hasn’t come close to dealing with the global realities of the last 30 years; and a glut of tax brackets and deductions that are too confusing, too easy to manipulate, and too divorced from simplicity and fairness. Yes, the rates are too high, both individually and corporately, but beyond that, the system is not right.

It’s not right because our tax code—which should be a way of collecting revenue to fund the legitimate functions of government—has instead become a policy measure used to implement social agendas, punish certain behaviors and reward others. Inevitably, cronyism has crept into our code. And the average wage earner and business owner has paid mightily for it.

It’s time to change that. It’s time for a tax code that is fairer, more efficient, and keeps more money where it belongs: In American’s pockets. Republicans took a big step toward that goal last week. We must continue to support them through the hard work to come.