Taxes, Ronnie And Donnie

"I love paying income taxes," said no one, ever.  Yet government does require sufficient funding and taxes are the cost we pay for a civilized society.  The urge to cut taxes for the sake of cutting them is wrong-headed and unworkable.

President Reagan -- the right's beloved Saint Ronnie -- discovered this in his first year in D.C.  In the thrall of supply-side ideology, Reagan pushed for the Economic Recovery Tax Act of 1981, a.k.a. the Kemp-Roth Tax Cut.  It slashed all tax rates, and he hailed it as the "World's Largest Tax Cut."  But the ERTA didn't work.  It did not produce any of the anticipated miracle revenue growth.  Instead it ballooned the federal deficit and sent interest rates from 12% to 20%.  So in 1982, Reagan began a series of corrective tax increases.  (Most conservatives have conveniently forgotten this history.)

Then in 1986, Ronnie and Democrats Tip O'Neill and Dan Rostenkowski brokered the Tax Reform Act of 1986.  It was billed as a "simplification," but it wasn't.  Such things never are.  But its changes were sweeping enough that to this day, federal tax code is know as the Tax Code of 1986.

TRA86 reduced the number and rates of individual tax brackets. From 15 brackets ranging from 0% to 50%, we went to just two brackets of 15% and 28%.  TRA86 "broadened" the tax base by reducing or eliminating many tax deduction/shelters, especially those for corporations.  It retained and enhanced favorable treatment for individual real estate ownership and investment.

Given funding necessities and the march of time, we eventually grew back to seven tax brackets with current rates ranging from 10% to 39.6%.

Today's GOP says that, after 31 years, the time has come for another major revision to the tax code.  Maybe.  They claim that TRA86 was an economic shot in the arm.  Debatable.  It was a boon to the real estate/home equity markets, but did not by itself spur any other real economic growth.

But the 1986 Act had two qualities notably absent in today's tax "reform" circus:  
1.  It was bipartisan, with Republicans and Democrats working together for almost two years before enacting it.
2.  It was "revenue neutral," meaning it was paid for, designed to maintain revenues and not increase the deficit.  It raised taxes on corporations to give tax cuts to individuals.

Contrast that with what Donnie Distemper and the Congressional Republicans are trying to shove down our throats today:  Another GOP-only rush job (if they can manage it) which will cut taxes on corporations and wealthy individuals and raise the deficit by the maximum "allowable" amount of $1.5 trillion!  This would result from significant tax cuts on individual incomes of $250,000 and up, from corporate tax rates slashed from 35% to 20%, and from cutting the tax rate on pass-through entities to a max of 25%.  (*Pass-through tax treatments are a trip through the tall weeds, but they're kind of important and maybe Buster will explain it some day.)

Ronnie at least tried to fair.  Donnie makes no such attempt, and doesn't even lie about it very well.  It's a Merry Christmas hand-out to those who need it least -- the Donor Class!

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*Oh hell, I'll 'splain it now.  Most large corporations are C-corps, and they pay corporate tax rates.  Pass-through entities are non-C-corp businesses where the owner's personal income "passes through" the company and is taxed at the individual rate (up to 39.6%), not the corporate rate.  Pass-throughs include partnerships, sole proprietors, LLC's and S-corps.  Ninety-five percent of all U.S. businesses are pass-throughs.  Only five percent are C-corps.  Pass-through entities generate 40% of total U.S. business income.  They are not necessarily "small" businesses.  The GOP tax plans propose to cap the individual tax rate on pass-through owners at 25% max.  But 90% of all pass-through owners are at 25% tax or less right now.  They won't benefit at all from the new cap.  However, the pass-through landscape does have few high-income players -- half of all pass-through income is now taxed at the top 39.6% individual rate.  For them, a cut to 25% would be huge!  The Trump Organization owns over 500 pass-through companies.