How Low Can Tax Rates Really Go?
Taxes

How Low Can Tax Rates Really Go?

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Somebody’s going to end up disappointed: A new analysis by the Tax Policy Center finds that even if Congress eliminated virtually every one of the more than 200 tax breaks on the books for businesses and individuals, tax reformers would not be able to slash rates as low as they wanted without running up the deficit.

The think tank, a joint venture of the Urban Institute and Brookings Institution, found that Congress could drop the corporate tax rate to 26 percent and set individual income tax brackets at 6.1 percent, 11 percent and 28 percent without increasing the deficit, but only if it also wiped out every single tax expenditure for individuals — including popular deductions for charitable giving and mortgage interest as well as tax credits for low-income households — and almost all for businesses.

The chances of Congress actually eliminating all those tax breaks are almost exactly zero, meaning that while it’s technically possible to cut individual tax rates to Trump-like levels, it’s “highly improbable,” the Tax Policy Center’s Howard Gleckman says. And on the corporate side, the rates being targeted by President Trump and tax negotiators in Congress and the administration can’t happen if the goal is to keep government revenue at current levels. “Trump’s 15 percent goal or even the 20 percent favored by the House GOP leadership is a pipe dream,” Gleckman writes. “It will be an enormous challenge for Congress to cut the rate below even 30 percent without losing a large amount of tax revenue.”

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Congress could still look for other ways to raise revenue and offset the cost of tax cuts — maybe a carbon tax, or a value-added tax — or it could make the numbers look better on paper by assuming what Gleckman and other analysts see as overly rosy projections for economic growth. (Of note here: President Trump on Thursday said that the tax package being devised will be revenue neutral once economic growth is factored in.) But absent such new ways to pay for the tax cuts, the rates being discussed are likely to meet some resistance from Republicans worried about rising deficits.

Or maybe not. House Speaker Paul Ryan on Wednesday “backed off months of promises that the Republicans’ tax plan won’t add to the nation’s ballooning deficit,” the Associated Press reported.

“We want pro-growth tax reform that will get the economy going, that will get people back to work, that will give middle-income taxpayers a tax cut and that will put American businesses in a better competitive playing field so that we keep American businesses in America,” Ryan said. “That is more important than anything else.”

This article has been updated.

Disclosure: The TPC study was funded by the Peter G. Peterson Foundation. Pete Peterson separately funds The Fiscal Times, which is editorially independent.

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