The GOP tax plan, while not ideal, is a good start. Republicans and Donald Trump, desperate for a victory are throwing out a tax plan in hoping they can get something passed this year. It would be much better if they took some time to work it out so that it didn’t have so many holes. But in the age of Trump, it is what it is.
Any real tax reform requires simplification. What complicates the tax code, especially at the individual level, are tax deductions and tax credits. People often wonder what the difference is between the two. A tax deduction lowers your taxable income whereas a credit is a dollar for dollar reduction of your income tax liability.
The last time the country had real tax reform in 1986, it eliminated a bunch of deductions (did you know you used to be able to deduct interest from credit cards?) in favor of two tax rates of 15 and 28 percent. Naturally, nothing good lasts forever, and George HW Bush, in a move that likely cost him re-election, blew apart the 1986 TRA and, adding a tax bracket of 31 percent and then it went up again in 1993 under Bill Clinton, adding two more brackets of 36 and 39.6 percent.
In addition to all of the layers of tax brackets came new tax credits – child tax credit, adoption credit, child and dependent care credit, solar panel credit, electric vehicle tax credit, the foreign tax credit, savers credit, lifetime learning credit and much more.
Social policy should not drive tax policy. It creates a whole new swath of special interests, all of whom want to retain the credit that best serves them. The GOP plan eliminates many of the credits above, and one that is drawing fire from conservatives is the adoption credit.
My colleague, Kim Ross, wrote about it and this is what she had to say:
The bottom line is that eliminating the adoption tax credit will make adoption more difficult. It will discourage families (most of whom are not independently wealthy) from the process. Adoption advocates and adoptive families attest to these truths.
Shame on the GOP for seeking to cut the necessary adoption tax credit while continuing to fund Planned Parenthood.
Adoptive families and adoption advocates have the most to lose from the elimination of the credit are going to argue it will make adoptions more difficult. If you don’t believe it, look at this headline from Wired regarding the elimination of the electric vehicle credit:
Congress’ plan to kill the electric car tax credit could kill electric cars.
If the electric car industry is dependent upon a tax credit for survival, perhaps it deserves to go away. What would be better is if the industry made it more palatable for people to want to purchase electric vehicles instead of relying on a tax credit to boost sales.
It’s the same with adoption. Streamline the process. Adoption advocates and families can work with state and local government to reduce the costs of adopting instead of relying on a tax credit that’s non-refundable.
If everybody moves to protect “their” favored tax credit, then what’s the point of reforming the system? The time has come to have the discussion about getting rid of credits and tax deductions (including the home mortgage interest deduction) for a simpler system that broadens the base and doesn’t give people “tax cuts” for engaging in a particular behavior.