Two key policymakers on tax issues, Senator Chuck Schumer (D-NY) and Representative Chris Van Hollen (D-MD), made clear in weekend interviews that they understand the “tax reform trap” — the danger of locking in a much lower top tax rate as the first step in a process whose main goal must be to reduce deficits. Such a move would be hugely expensive and regressive.
In an interview with the Washington Post’s Ezra Klein, Senator Schumer summed it up perfectly: “If your number one goal is deficit reduction, you don’t start out by lowering the rates. You don’t need a PhD in economics to understand that.” He later warned: “You can’t have it both ways. You can’t get the top rate significantly lower and get deficit reduction without clobbering the middle class — and doing it at a time when middle-class incomes are declining.”
On C-SPAN, Rep. Van Hollen said that we should “allow the top rates to return to where they were during the Clinton Administration, when the economy was doing just great, and of course [this was] the last time that we balanced our budget.” He pointed out that the bipartisan Simpson-Bowles deficit-reduction plan assumed, as its starting point, that the top rate would return to 39.6 percent and measured the deficit reduction of its tax reform proposals from that starting point.
He added: “There are things we should do to simplify the tax code, but we should not arbitrarily pick rate reductions . . . and then say we’re going to try and find a way to try to pay for this.”
It’s encouraging to see that more and more policymakers understand that the goal of tax reform shouldn’t be yet another tax cut for people with the highest incomes.