Improving Tax Reform

by Ramesh Ponnuru

Brian Riedl of the Manhattan Institute mixes and matches from the House and Senate bills and makes a few tweaks. The result is a plan that is better than either the House or the Senate bill but within the realm of the politically possible.

Riedl’s proposal eliminates the Alternative Minimum Tax and the estate tax, cuts the corporate tax rate to 20 percent, increases the standard deduction, doubles the value of the tax credit for children–and still hits the revenue targets that the House and Senate have set.

His work demonstrates the falsity of a claim that some congressional Republicans are making: that it’s not possible to provide tax relief tied to parents while also hitting the budget targets and providing business tax cuts.

The alleged constraints of the budget are the explanation given for why the existing bills provide so little tax relief tied to parents. The Senate bill would provide a family making $60,000 an additional $42.50 in tax relief for each child compared to the status quo. That’s because the family would gain $650 in tax credits but lose exemptions worth $607 for each child. That’s better than the House bill: Its trade-off–the family would gain a $600 credit and lose $607 in the value of exemptions–would leave households slightly worse off, compared to the status quo, for each child. (While this family would get tax relief from other provisions of both bills, the headline expansion of the child credit would be meaningless, and the parent penalty in existing federal policy would stay in place.) As Riedl shows, Republicans could do better if they wanted to.

 

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