Friday, January 19, 2018

The Republican Tax Reform: Part 4–Grandstanding

The Republicans passed a tax reform bill.

The Democrats hate it. Sort of.

Grandstanding is the name given to the political process of opposing something just because the other party is in favor of it.

I think it’s fair to say we’re seeing more grandstanding this year than in others. I also think it’s fair to say most of it is coming from Democrats this time around. Interestingly, there have also been intimations that some Democratic politicians would actually like the media and interest groups to back down on this a bit. Whatever.

I think different parts of the bill face different degrees of grandstanding.

The corporate tax rate reduction is getting the most grandstanding. This is move that the Obama White House wanted, and that both Obama and Romney campaigned in favor of in 2012. Reasonable should be able to disagree about the size of the reduction. Having said that, economists generally argue for a cut here that’s bigger than what the Republicans actually did. This has been a subject of some contention for the last 3 months, as many Democratically-oriented economists have publicly changed their tune, so there’s been a lot of WTF emails circulating amongst macroeconomists.

I do not think the Democrats are grandstanding about the removal of the Obamacare tax. This is a serious policy difference. On the other hand, the tax was a clumsy approach to partially addressing a still outstanding problem (that most people in the public have fooled themselves into thinking they pay for more than they get out of government healthcare programs — they don’t). The Republicans tried to come up with some alternatives for this, and they failed. Cutting this tax was a backhanded way to get part way there. I’m not saying that I disagree with the Republicans on that, but I think the Democrats are correct to point out that it’s dysfunctional.

On the increase in the standard deduction for personal income taxes, I think the grandstanding takes the form of silence. This is not something the Democrats have a principled opposition to, but very few of them are saying there are parts of the new law they actually like.

On the limits placed on deducting SALT from personal income taxes, I’m not sure the Democrats are grandstanding at all. Economically, the SALT deduction amounts to putting state and local government services on sale. It’s a distortion that leads to more expensive government, so it’s not really something anyone should support as a general proposition. But lots of people do support it because it benefits them personally, and no doubt they often ignore who’s paying the difference. And most of those supporters are in Democratically-oriented blue states. I view grandstanding as something that wouldn’t happen in other situations, and I would not call Democratic opposition to this grandstanding — instead I think the Republicans are picking on them, but the Republicans probably have the moral high ground on this issue.

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