Politics & Policy

The Coming Tax War in the 2016 Race

(Alexmillos/Dreamstime)

The Republican nominee for president won’t be decided for several months but, when it comes to tax policy, the Democrats’ script has already been written. Whoever the Republican nominee is, his or her plan will be derided for not only favoring the wealthy but for doing so at the expense of the middle class.

Democrats roll out this script whenever tax policy is in the news. For instance, when the pharmaceutical-giant Pfizer recently announced merger plans with Allergan, including possibly relocating its corporate headquarters to Ireland to avoid high corporate and non-territorial taxation rates here in the United States, White House spokesman Josh Earnest was on message. “[I]t’s not fair for companies to essentially renounce their citizenship, [and] seek to — at least on paper — locate themselves somewhere else just so they can pay a lower tax rate,” Earnest said. “That certainly is not the kind of benefit that’s available to middle-class families.”

Don’t tell the millions of Americans who itemize deductions each year that legal tax avoidance is high treason. Is paying taxes that aren’t owed the Left’s new idea of the American Dream? Earnest’s flamboyant rhetoric depicting drug-company tax attorneys as representing the dark heart of anti-Americanism should underscore for Republicans the Left’s dedication to demagoguery over a fact-based and intellectually honest debate. The White House should take the lead in reforming the tax code that currently creates incentives for companies to perform arcane tax maneuvers such as inversions to avoid high tax rates. The fact is this administration has done nothing but add complications and make America a less hospitable place to do business. Even NBC sportscaster Cris Collinsworth is making the case for a simpler, fairer tax code.

RELATED: What Democrats Mean by ‘Paying Your Fair Share’

The “if you’re not with us, you’re with the rich and against the middle class” mantra is nothing new coming from Democrats. It has been a dominant theme in the last two presidential election cycles. If Republicans aren’t careful it could be a dominant and damaging theme again.

On the policy front, conservatives have pushed a platform of reform in recent years, only to be met with false political attacks, aided and abetted by a liberal policy infrastructure. In 2008, Democrats savaged John McCain for allegedly proposing to tax the health plans of middle-class Americans when McCain planned to give Americans greater control of their own health care dollars through tax credits. In 2012, Mitt Romney was similarly savaged for his plan to lower rates and simplify the tax code.

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In both campaigns, Democrats laundered their attacks through supposedly non-partisan entities like the Tax Policy Center (TPC), a joint project of the Urban Institute and Brookings Institution. In 2008, the TPC did little to rebut Obama’s false claim that McCain wanted to tax people’s health care. In 2012, the TPC sponsored a paper from economists Samuel Brown, William Gale, and Adam Looney that wrongly suggested Romney would raise taxes on the middle class.

Instead of analyzing Romney’s actual proposal, TPC filled in its own details and released a paper proposing a political villain for the Left’s pre-written script. The economists’ claimed: “Governor Romney has proposed . . . large tax cuts to high-income households, and increase[d] the tax burdens on middle-/lower-income taxpayers.” Within hours of the paper’s release, President Obama’s teleprompter was already loaded with TPC-sourced hits on Romney. The attack ads were rolled out within 24 hours. The Obama campaign continued the barrage for weeks. At the time, some affiliated with TPC were taken aback at the obvious showing of partisan colors. A week after the paper’s release, TPC’s then-director Donald Marron acknowledged the paper did not, in fact, analyze Romney’s actual plan and wouldn’t go as far as the Obama campaign ads claimed. But the political train had already left the station.

#share#As we move closer to a general election, reformers ought to approach the battle of ideas with some clear thinking about who can sincerely serve as honest brokers. The debate moderators have been big news in the 2016 campaign but the far more important referees are off camera — the wonky scorekeepers at tax organizations who can shape voters’ perceptions.

Republicans can avoid a third act in this drama by refusing to play ball with any tax analysis group that 1) fails to adhere to basic standards of transparency, and 2) declines to use the real-world accounting practice known as “dynamic scoring” that accounts for the macroeconomic effects that result from major changes in tax policy.

RELATED: Cut Social Security — Not Payrolls — Taxes

Congressional Republicans have taken notice. In an internal rule change last year, the House of Representatives prodded the official scorekeepers (the Congressional Budget Office and the Joint Committee on Taxation) to bring revenue and budget estimates into the 21st century.

Some tax policy groups such as the Tax Foundation and think tanks such as the American Enterprise Institute are eager to showcase their tax models that use dynamic scoring. AEI is even developing an innovative open-source scoring system. The Tax Policy Center has nothing comparable.

Tax increases do more harm to the economy than spending cuts do, and dynamic scoring clearly illustrates this fact.

At the same time, the Left has a curious double standard when it comes to real-world modeling. In the climate debate, President Obama is willing to reengineer the U.S. economy based on climate studies that are very much dynamic. We’ll hear more about these studies as world leaders gather to negotiate a climate-change accord in Paris. Thoughtful people on both sides believe it’s reasonable to build “dynamic models” that measure human activity even if there is disagreement over the exact findings.

But when it comes to economics, dynamic modeling is controversial for Democrats. Why? Simply put, dynamic scoring tends to portray conservative tax reform proposals in a more favorable, realistic, and intellectually honest light by emphasizing their real-world pro-growth effects. Tax increases do more harm to the economy than spending cuts do, and dynamic scoring clearly illustrates this fact.

RELATED: A Pro-Family Child Tax Credit for the U.S.

The next Republican presidential nominee should expect the Left to be unfair and even vindictive about tax policy. There is no reason any campaign’s policy team should give think tanks proven to be politically charged the time of day. My colleagues in the media ought to take more care in how they characterize papers from the Tax Policy Center, given its history and its clear liberal bent.

As Douglas Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office, suggested last week, getting tax reform right is one of the most important issues in 2016. Few policy changes will do more to expand opportunity and encourage strong economic growth, which is the most important solution Washington can facilitate. In this debate, Holtz-Eakin notes that TPC has chosen to serve as the “de facto defender of the extreme left side of the partisan debate.”

For a real debate that serves the public interest, honest and transparent analysis is essential. Let’s hope reformers don’t trap themselves into a rigged game.

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