I’m a Democrat, and here’s what I think Republicans should do if they want to pass tax reform

House Republicans have a new tax bill, and it’s more of the same. The Bush 43 tax cuts added more than $5 trillion to the debt and helped the rich. The Trump tax cuts added almost $2 trillion to the debt and helped the rich. These new tax cuts would add about $1 trillion to the debt, if extended permanently, and – you guessed it – help the rich.

This special-interest buffet won’t pass the Democratic-controlled Senate. It may not even pass the Republican-controlled House. But it still presents two opportunities worth watching.

First, it’s a chance for Republican deficit hawks to gain credibility. They are badly in need of it. Continuing in the vein of the Bush and Trump tax cuts, the House GOP started this term by voting to increase the deficit, once again, by helping corporations and millionaires avoid taxes by underfunding IRS audits. Then, they nearly defaulted the U.S. government. Neither of these measures impresses as fiscally responsible.

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But a band of House and Senate Republicans who rejected this latest debt driver would stand apart. They could break the pattern of complaining about deficits when they help the sick and poor, but adding to them to help the wealthy and well-connected. It’s easy to be a Republican who decries Democratic spending. A Republican who criticizes their own party’s reckless tax cuts could start a more productive conversation.

Here’s where the second opportunity lies. If Republicans would just reach across the aisle, they might strike a tax deal. Last term, Democrats got Republicans on board with investments in infrastructure and manufacturing; a gun-safety package; marriage equality; and democracy reform. Now Republicans have the House, and they are keen to take on taxes. If they want to actually pass a law, they should build on that bipartisan momentum.

In case any are reading, here’s three conversation starters.

One – reward work, not wealth. The earned income tax credit (EITC) was Ronald Reagan’s favorite tax. Democrats like it, too. It’s a negative income tax for the working poor. Congress should expand the EITC by up to 20 percent. To pay for it, repeal the step-up in basis for inheritance taxes, a provision that cuts capital gains taxes for heirs.

Another conversation starter is research and development. It’s close to home: thirteen million Americans could have Alzheimer’s disease by 2050. And, it’s strategic: a recent report suggested that China is out-innovating the United States in 37 of 44 critical and emerging technologies. The Trump tax cuts impaired corporate R&D by requiring it to be amortized, instead of expensed, in an attempt to scrape together revenue in an otherwise budget-busting bill. 

Republicans are now reversing course on expensing versus amortization; better late than never. More R&D would provide a big economic boost in the long run. To pay for this improved R&D tax treatment, Congress should raise the minimum tax rate on corporate international income to 15 percent, in line with the OECD agreement known as Pillar Two. Developed economies are increasingly aligned on the 15% floor, and the United States will generate economic and political blowback by staying in the 10 to 13 percent range.

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Finally, help children. The fully refundable child tax credit, in law for just one year in 2021, is totemic for the Democratic caucus. No Republicans supported that law, but Senator Mitt Romney did propose another version. This Republican counter-offer has some good ideas, like phasing in the credit faster; and some bad ideas, like cutting the EITC. In other words, it’s a fair discussion draft to start dealmaking.

Dealmaking. That should be Republicans’ mantra in divided government. With their deficit-driving tax cut for the rich, they are burning yet more of their fiduciary credibility. Instead, they should be working with Democrats on prudent tax reforms to reward work, not wealth; to generate more R&D; and to help children.

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