By Steven Pearlstein
The Washington Post
As my Washington Post colleague Dana Milbank recently shared (cribbing a line from former Israeli foreign minister Aba Eban): Democrats never miss an opportunity to miss an opportunity. That is was proven again this past week on the issue of tax reform.
Along with everyone else, Democratic leaders have known for weeks that Republicans in Congress were desperately trying to overcome their own divisions and cobble together a tax “reform” plan that was likely to be more tax cut than genuine reform. In anticipation, Democrats and their allies have been working themselves into a lather about how all the cuts would go to the wealthy and big corporations, how it was all being drawn up by Republicans behind closed doors without even a pretense of bipartisan cooperation, and how it will add at least another $1.5 trillion in deficit spending over the next decade to a federal budget that was already on course to add $9.5 trillion.
But here’s what you didn’t hear from Democrats: their own tax reform plan. By offering one, they could have set the terms of the upcoming tax debate and laid down a set of simple principles that voters could easily understand and readily embrace: No increase in the deficit. No shift in the tax burden from business to individuals. No change in progressivity — the degree to which the tax code narrows the gap between rich and poor. Better still, by including in their plan some features that Republicans desire most, they could have demonstrated that theirs is the only party serious about governing a divided country and actually getting things done in a genuinely bipartisan way.
What would such a Democratic tax proposal have looked like?
In some key respects, it might have looked a lot like the one House Republicans released Thursday. Maintaining the top personal tax rate where it is at 39.5 percent. Doubling the standard deduction so that less than 10 percent of households would chose to itemize deductions. Increasing the child tax credit to help working families. Lowering the corporate tax rate (perhaps not as much a Republicans propose) while eliminating a raft of distortive preferences and abusive tax dodges.
Taxing multinational corporations the same way ever other country does — that is, only on their domestic profits — but only if they pay a minimal level of foreign taxes on overseas profits. Ending the tax deduction for interest payments. Allowing companies to bring home their “stranded” foreign profits, but only after taxing them at a double-digit rate. A Democratic version might tweak the details a bit, such as lowering the corporate tax only to 25 percent, and putting a higher tax floor on foreign profits, making more of the child-tax credit refundable for low-income households and barring interest deductions for small businesses as well as large.
A Democratic tax plan, however, could have gone further in the direction of fairness and economic efficiency. Democrats could have offered to pare back or even eliminate the estate tax, but only after closing a gaping loophole and requiring millionaires and billionaires to pay the tax on unrealized capital gains before passing investments on to their heirs. They could have agreed to Republican proposals to cap the deduction for state and local taxes that now favors residents of high-tax states — but only if all other major deductions are capped in a similar manner.
They could have wiped out the carried-interest loophole and other tax dodges created to benefit private-equity firms and hedge funds and real estate developers. They could have joined Republicans in proposing immediate expensing of investments in productivity-enhancing equipment and innovative R&D, while eliminating tax preferences for real estate purchases, share buybacks and acquisitions of other firms. And Democrats could have insisted that any business with more than $5 million in sales be required to pay the corporate tax on its profits, whether it is organized as a corporation or not.
Instead, all we got from Democrats was whining about process and yet more dire warnings about the impending economic catastrophe that Republicans would inflict on the always struggling and oft-mentioned middle class. Democratic leaders seem to have decided that the best way to win back control of Congress in 2018 is to keep the Democratic base in a permanent state of outraged agitation while giving an unpopular and badly divided Republican party all the room it needs to self-destruct on its own.
Democrats are surely right in predicting that any gesture of constructive, bipartisan cooperation would likely have been spurned by Republican leaders, just as it has so many times in the past. Politically, however, that’s beside the point. The inability of Democrats to capitalize on the stunning unpopularity of the Republican president and the Republican Congress stems from a failure to put forward in a compelling way a set of ideas that excites and appeals to the broad center of an electorate that has grown cynical about politics and government.
Voters are hungry for leaders who will tell it like it is, take on the special interests and have the conviction to stand up for what they believe to be right. They’re so hungry, in fact, that some think they see such qualities in a charlatan like Donald Trump. At the same time, they are so cynical that they can sniff out a triangulating, poll-driven panderer from a mile away.
What I can’t figure out is what Democrats and their legion of staff members are doing all day up on Capital Hill if they are not doing things like coming up with their own proposals to reform the tax code, or fix Obamacare or offer hope to people left behind by trade, immigration and technological progress.
Their wrong-headed view is that the luxury of being in the opposition is that you don’t have to put forward any ideas that might alienate the base or make the difficult choices that could bring down the wrath of special interests. The role of the opposition party, they tell themselves, is to oppose. What they seem to have forgotten is that the surest strategy to stop being the opposition party is to stop acting like one.