Editorial: Do Republicans want tax reform, or just a tax cut?

Paul Ryan would really, really like to reform the U.S. tax code. When the Editorial Board met with him last month, he made that much clear.

“We have the worst tax code in the industrialized world,” he said. “Just trimming it back isn’t sufficient. You have to reform the system so we can be more globally competitive.”

And if that wasn’t clear enough, he said later: “That means reform, not just cutting but reforming.”

And now, as 2017 wanes, Republicans in both houses of Congress find themselves 10 months into the Trump administration with little to show for it. Despite control of the House, Senate and presidency, they have failed to pass any major legislation.

Scott Reed, a senior political strategist at the U.S. Chamber of Commerce, told Carl Hulse of The New York Times last week: “We are 10 months into a new president with a city that appears to be dysfunctional. It is vital that tax reform and economic growth get accomplished by the Congress.”

And we agree: True tax reform, along the lines of the 1986 reform, in which tax rates are adjusted and loopholes are closed, would be a good and significant accomplishment.

Settling for only a tax cut would not.

With so many demands on the federal Treasury including a reboot of the war in Afghanistan and big bills for hurricane damage in the Gulf Coast, that’s a recipe for exploding the deficit.

But given the direction the GOP appears to be heading — toward satisfying a highly compensated Republican donor class — their efforts may end up being a tax cut marketed as "reform." Don't buy this line.

Ryan has a chance to prove he meant it when he sat down with us on Sept. 1. He needs to lead his fractious caucus toward real reform that simplifies the tax code, reduces rates (including the corporate rate) and limits the self-seeking carve-outs that make a mockery of fairness. Trouble is, if recent news reports are to be believed, the opposite is in danger of happening.

According to another Times report last week, the GOP is considering a rollout of an experiment in Kansas that failed miserably. That state for a time collected no taxes on so-called “pass-through” businesses, such as sole proprietorships and limited liability partnerships. The result was that the wealthy, with their accountants in tow, figured out how to avoid state income taxes by channeling compensation through such entities. The Times cited the example of the University of Kansas football coach, David Beaty, who was able to run about two-thirds of his $800,000 a year paycheck through such an entity. He avoided paying about $37,000 a year in taxes, the Times reports.

The Kansas legislature ended that freebie this year.

The tax plan Republicans rolled out recently would cut the tax rate on pass-through businesses from 39.6% to 25%, which could well have a similar effect nationally.

Again, let’s hear from Paul Ryan during his visit with the Editorial Board:

“You’ve got to reform the system. You can’t just tinker around the edges.”

Will Republicans opt for the easy way out and only do a tax cut? Or do they have the stomach for real reform that confronts locked-in special interests that have always eaten good ideas for lunch?

“We’ve got about $3 trillion in trapped cash overseas that basically can’t come back to this country because of our tax laws. We need to reset the system," Ryan told us. "If not now, when? The reason this hasn’t gotten done in 32 years in that special interests have always prevailed over the general interest. … I really believe this is the time to do it.”

We hope Ryan is right. Moreover, we hope he’ll fight members of his own party who will be tempted to take the easy way out once again.