Why Democrats Will Never Produce Meaningful Tax Reform

Republicans, eager to prove they can get something done after the failure to repeal Obamacare have pushed full speed ahead with tax reform.  Just as eager, Democrats have stood in total opposition to the plan.  On a 227-205 vote, the House passed their version with every Democrat dissenting.

The House backed plan offered Democrats little to like.  It shrunk the seven brackets down to four, limited deductions for the middle class and capped the state and local tax deduction at $10,000.  It also did little for small businesses by taxing them at 35 percent for most of their income (pass-throughs).

The Senate version is different.  Legislative text from the Senate version shows it keeps all seven brackets (slightly adjusts each), repeals the Individual Mandate, keeps most current exemptions (health insurance, mortgage deduction) and eliminates the state and local tax deduction completely.

For their part, Democrats in the Senate, due to their increased sway, should have had power to be involved in tax discussions.  Moderate Senators from Indiana, North Dakota and West Virginia easily could have been involved in discussions.  President Trump even tried to woo them by campaigning on tax reform in their respective states.

But, the pull of partisanship, and the modern environment of the Democratic Party makes this impossible for any member (no matter where they come from).  Gone are the days when Democrats would actually engage in tax reform in good faith.  Instead, the party has become the party of the wealthy, gentrified elite.  Much as they try to deny it.

Up-scale, wealthy suburbs that used to be the base of the GOP have become the beating heart of the Democratic Party.  While Democrats preach about how the scales are tipped in favor of the rich, the gentrified elite know Democrats would never meaningful move against their wishes.  Anything Democrats do will preserve their status.  But, Democrats have become so beholden to the “tax the rich” rhetoric they provide little recourse for moderation from their red-state members.

A number of factors have contributed to this phenomenon.  The first is the steady annihilation of conservative Democrats (primarily in the South but also the West).  The second is the growing ideological polarization among Democrats.  Yes, Republicans have become more ideological but so have Democrats.  Particularly on economic lines.  Economic inequality is a driving force in leftist politics and the solution is largely more governmental action.

The third is, well, honestly Trump (okay, well, any President of the opposite party).  Democrats benefit from opposing the President more than they benefit from compromise.  Thus, from an electoral perspective, it makes sense for Democrats to oppose a GOP President’s efforts to reform the tax code or deliver tax cuts to Americans.  The chart below shows this in full effect.

tax-votes-4

Note two things from the chart.  Since Clinton a Democrat has not passed meaningful large-scale changes to the tax code (sorry Obama, preserving the Bush tax cuts is not your change).  Secondly, how since 1954 Democrats have largely opposed Republican efforts to change or simplify the tax code, culminating in 2001 and 2003.

Now, there may be some well-intentioned Democrats who want to simplify the tax code or provide cuts to the middle class.  But the politics of the Democratic Party and partisan environment make this impossible.  Democrats are simply too invested in wealth inequality and the soaking the rich argument to support meaningful change.  Meanwhile, they remain beholden to voters in wealthy, gentrified suburbs who would revolt if Democrats actually followed through on their soaking the rich rhetoric.

Republicans may succeed or fail in their efforts to reform the tax code and provide $1.5 trillion in cuts to businesses and families.  But at least they are trying.  That is far more than anybody can say for the Democratic Party.

 

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