The Republican Party’s official 2016 platform, released on Monday, is wholly out of touch with reality. The plan would exacerbate the dual problems of rising inequality and continuous annual federal budget deficits with tax cuts that essentially put more money into the pockets of wealthy people and corporations and reduce federal revenues.
Some of the most troubling tax policy proposals:
1. Move the U.S. to a territorial tax system.
Under the heading “A Competitive America,” the GOP platform calls for the United States to “switch to a territorial system of taxation,” stating that such a system would help drive more investment and economic growth. In reality, a territorial tax system would create greater incentive for companies to shift profits and jobs offshore.
Under a territorial tax system, U.S. companies would no longer be required to pay tax on offshore profits. Such a system would encourage U.S. companies to move jobs and investments because they could take advantage of low- or zero-tax rates in tax haven countries. On top of this, U.S. companies would have more opportunities to avoid taxes under a territorial tax system because once they are able to artificially shift their U.S. profits offshore, they would never face any U.S. tax on these profits.
One striking thing about the GOP embrace of a territorial tax system is that Donald Trump proposes the opposite. His plan would end deferral and implement a full worldwide tax system.
2. Substantially lower corporate tax rates.
The GOP platform claims that American businesses face “the world’s highest corporate tax rates” and that the U.S. should lower its rate to be “on par with, or below, the rates of other industrial nations.” The key issue is that the GOP platform writers are only paying attention to the statutory U.S. rate, while ignoring the plethora of tax breaks and loopholes that enable most companies to pay well below the top rate. In fact, according to data from the OECD, the U.S. already has an effective corporate tax rate that places it just below the average rate of industrial nations. If the GOP succeeded in lowering the statutory rate to 25 or 20 percent, the most likely result would be a massive loss in revenue from one of the country’s most progressive sources of funding.
3. Enact a strict balanced budget amendment and require a supermajority vote to increase taxes.
One the more understated yet critically important tax policy proposals in the GOP platform is its call for a radical version of a balanced budget amendment that would not only require the budget to be in perfect balance each year, but would also place a cap on total spending and require a supermajority vote for any tax increase. A balanced budget amendment would cause a myriad of problems, but the most important is that it would restrict the ability of government spending to counteract recession through stepped up government spending.
The spending restraints would place a stranglehold on lawmakers’ ability to make any additional public investments and would likely require substantial spending cuts. In addition, it could make closing even the most egregious of tax loopholes impossible because closing such loopholes could require a supermajority vote. Many state governments have found themselves continuously hamstrung by such spending and revenue-raising restrictions.
4. Repeal FATCA
The GOP platform takes aims at the Foreign Account Tax Compliance Act (FATCA) anti-tax evasion 2010 legislation by specifically calling for its repeal. The key provision of the law is a requirement that foreign banks and foreign branches of U.S. banks share information on the accounts of U.S. citizens and residents with the IRS or face a harsh withholding tax. Access to this information will allow the IRS to track down those individuals who have been evading U.S. taxes by holding their assets in undeclared offshore accounts. The Joint Committee on Taxation (JCT) estimated that FATCA will help the IRS claw back $8.7 billion that would otherwise have been lost to tax evasion over the next decade.
In other words, the GOP platform is effectively advocating for tax evaders who would benefit to the tune of billions of dollars if the legislation is repealed.
5. Oppose any further increase in the gas tax.
In its section on transportation policy, the GOP platform opposes any increase in the federal gas tax, despite the fact that the federal gas tax has not been raised since 1993. Because of inflation, this means that the value of the 18.4 cent per gallon level has eroded nearly 40 percent over the past two decades. This erosion in value has led to a perpetual lack of revenue to adequately fund the infrastructure spending programs that lawmakers support, which has led them to embrace less- than-ideal funding sources for making up the difference. Last year for example, Congress essentially searched under the couch cushions for infrastructure funding by paying for it with things like higher user fees on unrelated transactions and selling off oil from the strategic petroleum reserve.
Rather than continuing its piecemeal approach, Congress should shore up transportation funding by increasing the gas tax now and indexing it to inflation.