Boehner’s Fake Offer of Compromise on Taxes

Speaker Boehner Uses Different Words to Repeat Unchanged Opposition to Giving Up Tax Cuts for the Rich

On Wednesday, Republican House Speaker John Boehner repeated his stance that his caucus would not approve any increase in tax revenue except for a revenue boost driven by economic growth that they claim will result from the sort of tax overhaul proposed by Mitt Romney.

Boehner attempted to present this position as a compromise, saying his caucus is “willing to accept some additional revenues” but then went on to say, “There’s a model for tax reform that supports economic growth. It happened in 1986 with a Democrat House run by Tip O’Neill, and a Republican President named Ronald Reagan.”

The Tax Reform Act of 1986 was projected by Congress’s official revenue-estimators to be “revenue-neutral.” The law ended many tax loopholes and special breaks, but used the revenue saved to offset reductions in rates, just as Mitt Romney claimed (but failed to demonstrate) his plan would do.

Nonetheless, Boehner argued that this sort of tax reform improves the economy so much that the resulting increased incomes lead to increases in the amount of tax revenue collected. He said that by “creating a fairer, simpler, cleaner tax code, we can give our country a stronger, healthier economy. A stronger economy means more revenue, which is what the President seeks.”

But the projections of revenue-neutrality in 1986 were correct. Several studies on the impacts of the 1986 reform were done by economists on all sides of the tax issue in the 1990s, and none found evidence that it expanded the entire economy in a way that would boost revenue as Boehner claims.

The 1986 reform did a lot of good, but it was revenue-neutral and it was very different from what Republicans have been talking about today. The 1986 reform enhanced fairness by ending tax breaks for investment income that allowed wealthy investors to pay lower effective tax rates than middle-income people, and these reforms were sustained for several years before these breaks were brought back into the tax code. But Congressional Republicans want to expand those breaks or at least make permanent the Bush-era provisions that expanded them (the 15 percent special top rate for capital gains and stock dividends).

The 1986 reform also made U.S. corporations collectively pay higher taxes, by closing loopholes and cracking down on offshore profit-shifting, largely by curbing “deferral” on taxes on U.S. profits that companies artificially shifted to tax havens (reforms that have largely been eroded since then). Higher corporate taxes made it possible to reduce personal income tax rates, while keeping some popular and useful personal tax deductions and credits. But Congressional Republicans, and sadly even President Obama, propose that the corporate part of tax reform should, by itself, be revenue-neutral (if not revenue-negative).

Curbing unwarranted tax breaks, as happened in 1986, is an excellent idea. But the revenues from such reforms should be used to make public investments or cut the deficit, not reduce tax rates. In fact, the highest priority of tax reform should be raising revenue — real revenue, not the voodoo-economics sort of revenue gains that Boehner mistakenly claims will come from tax-rate reductions.

Most people forget that President Reagan actually increased taxes substantially (and repeatedly) after his 1981 tax reductions failed to achieve the economic goals he had been told to expect by his “supply-side” advisers (whom Reagan fired). Congressional Republicans, who say they admire Reagan, should emulate his responsible later policies, rather than try to repeat his early (and admitted) mistakes.