Democrats should not be afraid of this tax bill

Looking over the tax bill, I think democrats should continue to punish it in the press, but privately hope the GOP passes it. Yes, most of the benefits go to the rich, and it will blow up the deficit even more. But those are short term concerns.

The truth is that the GOP position on taxes vs. deficits has been dodging reality for some time. But reality can only be avoided for so long. While there’s a small risk that they’ll financially ruin us like Greece, the US has far more levers for balancing the budget, namely fairly low taxes. More likely is that the demands for balancing the budget will eventually require more taxes, and this tax bill sets that possibility up.

Most of the benefits in this tax bill go to the rich, and ironically that’s the tax group that’s easiest to raise taxes on politically. Much of that can be reclaimed. But more than allow its repeal, the GOP has opened paths for new taxation. Their argument that the corporate tax rate needs to be at 20% to compete with international standards is correct. But it misses a huge point. In most of those international competing countries, the 20% rate is augmented by a Value Added Tax (VAT). Raising the 21% rate will be politically difficult, but the VAT could be a whole new ball game for tax revenue. And it also makes long term flexibility on taxes easier because raising it from, say 5%, to 6%, is easier than raising taxes on the general population, and it’s harder to avoid than income taxes. This tax was already getting serious consideration. I think this breaks the dam. The biggest obstacle is overcoming the opposition from the rich who pay the donations for politicians. But that’s not enough in the long run.

There are also some other positive changes. It limits mortgage interest deductions and state/local tax deductions without completing eliminating them. This raises revenue without hurting your average customer. Yes, it hurts high housing cost areas, but it also depresses some of those crazy high housing prices, which is a good thing in my opinion. And there’s no reason the government should subsidize those things in the long run.

Meanwhile, most of the really bad ideas are gone, such as taxing grad student tuition. The only real turd in the bill is the tax rate for pass through businesses. It’s at serious risk of being gamed, and despite trying to avoid the same disaster than happened in Kansas, it’s unlikely they’ll be able to take out all or even most loopholes that rich people will use to take advantage of the tax.  Even there though, one has to wonder whether just conventional wisdom will eventually win out if/when this gets gamed.

In the meantime, the GOP will be exposed even more for being corporate lackeys and billionaire lap dogs. The dems have to be secretly jumping for joy.

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