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Financial Planning > Tax Planning > Tax Reform

Republicans’ Haste Warps Their Tax Legislation

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Any major tax bill has unintended consequences and hidden loopholes. But the current Republican tax effort just bristles with such potential miscues. It’s a slipshod product, legislated with minimal transparency and analysis and with a premium on partisan politics.

The Senate is slated to vote this week on a tax bill that’s similar to the one the House passed on Nov. 16. Both call for huge tax cuts, primarily for corporations and upper-income individuals, with little, sometimes nothing, for many middle-class taxpayers. Both parade as tax reform, but do little to reorganize the tax system as the last real tax reform did in a bipartisan measure passed in 1986.

The legislation has been rushed so fast through a short-circuited lawmaking process that if it’s successful, many of the politicians who voted for it may find themselves shocked to discover what they’ve done.

(Related: Tax Loopholes for Wall Street’s Wealthiest Linger in Bill)

Over the summer, Republican leaders brushed aside Sen. John McCain’s call for “regular order” to consider what soon became a failed effort to repeal the Affordable Care Act. Regular order involves dozens of hearings where different views can be ventilated, along with deep analysis in a bipartisan spirit.

Politically motivated haste has now produced an equally reckless tax effort.

On a macro level, it’s not going to produce the promised economic growth. It can be expected to add at least $1.7 trillion to the deficit in 10 years and worsen income inequality.

It’s no surprise the House legislated on a partisan basis; that’s long been the way it does business. But the Senate ought to be a different story. Sen. Orrin Hatch, who leads the Finance Committee, could have tried to work with Sen. Ron Wyden, the panel’s senior Democrat who was amenable to a bipartisan tax-reform deal. Instead, the seven-term Utah lawmaker, under pressure to retire next year, went small, expensive and partisan.

Stephen Shay, a Harvard University law school lecturer, tax lawyer and former Treasury official, has predicted that the rushed legislation “will be rife with undiscovered loopholes that increase the windfalls and scope of the deficit.” The Finance Committee did hold an Oct. 3 hearing, he noted, but it lacked substance and was “irrelevant except to permit the committee majority to say a hearing was held.”

Overall, Shay writes, “There is a pervasive failing in the bill to introduce guardrails around substantial rate reductions that would effectively police the many new boundaries between rate differences that the bill creates.”

Some provisions are included to score cheap political points. Conservatives targeted higher education, elite liberal institutions in their book, with taxes on the endowments of better-off colleges and on the tuition waivers graduate students receive for working as researchers or teaching assistants.

There were no hearings that weighed the effect of these measures. University officials claim they would reduce research and cut financial assistance for middle-income students — at a time the federal government is cutting back in the same areas.

Likewise, the House version would stop allowing taxpayers to take a deduction for medical expenses that exceed 10% of their income. That would hurt middle-and working-class families.

On matters small and large, Republican leaders have deliberately left no time for definitive congressional analysis of the economic and social fallout. Then they’ve summarily dismissed research by respected outside groups like the Tax Policy Center, which has found that the legislation decisively tilts to the well-to-do — by 2027, the wealthiest 1% would get 60% of the benefits, the group says — and that by 2027, tens of millions of middle-class families would pay higher taxes.

The Senate bill has a provision for triggering automatic additional corporate tax cuts in the unlikely event that revenues exceed expectations. On Tuesday, Republicans inserted a so-called “backstop” provision that would limit tax cuts years from now if there’s a revenue shortfall. Details weren’t provided and it’s probably more of a vote-getting device than a substantive check on ballooning deficits.

Sponsors contend that tax cuts benefiting the middle class that are slated to expire in 10 years actually will be extended by a future Congress. If that’s true, what they don’t acknowledge is that these future cuts would add even more to the deficit, bringing pressure for significant spending reductions. The only big available targets are entitlements like Social Security and Medicare, or military spending.

That’s why there should be a clear path for deficit hawks like Sen. Bob Corker of Tennessee and Jeff Flake of Arizona, or defense hawks like McCain, to send this bill back to the Finance Committee for real hearings, review, debate and analysis. That’s called regular order.

— For more columns from Bloomberg View, visit


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