The ‘Bermuda Triangle’ of Tax Reform

The ‘Bermuda Triangle’ of Tax Reform

iStockphoto/The Fiscal Times

Why haven’t Republicans released a comprehensive tax plan yet? According to Vox’s Matthew Yglesias, the reason is simple: Republicans are pursuing incompatible goals that makes consensus impossible.

The GOP tax blueprint has three essential principles:

  1. a big tax cut for corporations and the wealthy
  2. a tax cut for the middle class
  3. a limited impact on the deficit, with either no increase in debt or an increase that can be made up for with growth.

The problem is that the third principle stands in opposition to the first two. Yglesias points out that original Republican plan for tax reform created by House Speaker Paul Ryan involved both a new tax on consumption and a significant reduction in health care spending through Obamacare repeal, but this approach is no longer politically viable. Republicans are left with a desire for big tax cuts — two legs of the triangle — but no way to pay for them. The missing third leg threatens the whole thing with collapse.

The obvious solution to the “trilemma” — economist Paul Krugman tweeted that the technical term, at least among those who do international economics, is “impossible trinity” — is to simply abandon the principle that is causing so much trouble, and that may indeed be where the Republican tax reform campaign ends up. But the loss of that principle — deficit neutrality — will create its own problems, both political and fiscal, that could end up sinking the effort too.