How “Main Street” Tax Reform Could Change the Nation

Each week the presidential campaign seems to be getting sillier and sillier — from attacking the appearance of another candidate’s wife, to standing by a man who grabs female reporters — so perhaps the likelihood of serious policy discussion will continue to fall over time.

But that hasn’t stopped the Hudson Institute from grinding away at the vastly important matter of tax reform in America. Tax policy experts on Wednesday gathered for a panel discussion that delved into the details without once descending into crazy rhetoric.

The goal? Understanding how to best implement tax reform in a way that is both mathematically and politically feasible.

“For the most part, the plans proposed by candidates are all different,” said Kyle Pomerleau, director of federal projects with the Tax Foundation. “And most plans have offered some kind of details within them, so we’ve been able to model the impacts of these plans on the economy without having to ask too many questions of the candidates.”

The problem, however, is that all plans have an Achilles heel of some sort, Pomerleau argued.

“Indeed,” he continued, “while these plans have very interesting proposals, one of the major problems is that they’re probably infeasible across the board, due to problems with arithmetic and political viability.”

For example, Sen. Ted Cruz’s tax plan would offer the top one percent of taxpayers a 30 percent rate cut, which is a hard sell amidst the current populist political environment, Pomerleau said.

On the Democratic side, Sen. Bernie Sanders promises massive tax increases. The socialist democrat from Vermont’s plan is a 13-fold increase over Hillary Clinton’s proposal, all in the service of higher welfare spending as opposed to debt service.

“Given the political and numerical challenges with some of these reform plans, one wonders of course: Is there a better way to do tax reform that sort of balances this stuff?” Pomerleau asked. “So today we’re trying to answer that question.”

And so far, the most promising new tax reform proposals comes in the form of The Main Street Tax Plan, sponsored by the Hudson Institute and composed by Jeffrey H. Anderson, a senior fellow at the Institute. The plan would cut taxes for average income earners — Main Street Americans — while bolstering revenues.

“This tax plan attempts to balance all these things, get some pro growth stuff in there, some of the features that conservative reformers want, but it also makes sure that it pays attention to the politics and the arithmetic of fiscal policy,” Pomerleau said.

Translation: This may be the best conservative tax reform plan that can get actually implemented in today’s political climate.

This is not to say the plan is mired down in liberal concessions. Quite the opposite, argued Anderson, who spoke on behalf of his proposal.

“Ideally, I think tax reform should accomplish three major things,” Anderson said. “It should spur economic growth, clearly benefit the typical American the most, and it should improve our fiscal situation rather than worsen it.”

Specifically, Andersen’s plan would accomplish this by helping us to grow our way out of debt rather than pushing us further into debt.

“The problem with the tax plans proposed by candidates is that all of them would benefit the top one percent more than they would benefit the typical American, and with a couple of exceptions, all of them would balloon our already tremendous national debt,” Anderson said.

While his plan is complex and full of various details regarding tax policy, one major change proposed by The Main Street Tax Plan is the creation of a 20 percent tax bracket.

Here’s how that would work in practice:

Currently, let’s say a hard-working single mother is working overtime to help her kids. But when she does so, she increases her wages to the point where she jumps up from a 15 percent tax bracket and into a 25 percent tax bracket. This huge leap essentially renders her work pointless, as she is still taking home about the same paycheck, despite having worked much harder.

As House Speaker Paul Ryan has said, this is a poverty trap.

A new bracket that allows Americans to ease into growth — making it so people are not penalized for achieving upward mobility — would have immediate benefits to the nation, Anderson argued.

Obviously, this is just one small aspect of a much broader tax plan. For the full panel discussion, head over to the Hudson Institute, or read the full written proposal here.

Evan Smith is a Staff Writer for Opportunity Lives. You can follow him on Twitter @Evansmithreport.