If GOP Changes the Tax System, What Would it Look Like?

By Chris Adams

President Donald Trump has pledged to overhaul the U.S. tax system, lowering individual and corporate taxes. Republicans in Congress are interested in doing so as well.

But pulling off a tax overhaul is politically tricky – and, as envisioned right now, could lead to significant increases in the federal deficit.

Kyle Pomerleau (bio, Twitter), director of federal programs at the Tax Foundation, led NPF Paul Miller fellows though an explanation of the current tax system and how it might change.

“The individual income tax is a mess,” he said. There are numerous redundant and complex provisions. One example: education benefits, which comes in the form of at least three different tax credits as well as tax deductions on tuition payments.

The tax system is riddled with such “tax expenditures,” which cost the U.S. Treasury revenue even if they are not in the form of a levied tax.

Pomerleau explained those tax expenditures, as well as the political realities that keep them in place.

He then explained the various tax plans from Republican candidates who ran in the 2016 presidential election, and how those ideas are driving much of this year’s tax debate. Most of the 12 GOP candidates who had proposals would have cut the corporate tax rate; cut the top marginal tax rate; reduced deductions for state and local taxes; eliminated estate and gift taxes; reduced the progressivity of the tax code; and eliminated the alternative minimum tax. Trump’s plan was in line with those plans, although at a bigger cost to the U.S. Treasury.

Trump’s tax proposal as a general election candidate scaled back some of those ideas, but retained others. As president, Trump has released his tax reform proposal that actually offers fewer details than his plans as a candidates.

“It was a lot of the same highlights as the tax plans of 2015 and 2016 but not enough details to allow us to actually model it,” Pomerleau said.

Pomerleau talked about the current politics of tax reform, and how likely it is some form of it would make it through Congress. He also discussed different strategies for modeling tax proposals, talking about the difference between “static” and “dynamic” scoring of modeling tax proposals; dynamic scoring seeks to take into account the projected behavior of taxpayers and the impact that might have on tax revenue.

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