GARY CAMERON / REUTERS Taxman: Ryan discussing the Better Way plan with reporters, Washington, D.C., September 2016.

A Tale of Two Tax Plans

What Trump and Ryan Get Wrong

Republicans have long panned the U.S. tax system; now they have a plan to change it. In fact, two plans. The first comes from Congress, the second from the White House. The congressional “Better Way” plan, championed by Paul Ryan, the Speaker of the House, and Kevin Brady, chair of the House Ways and Means Committee, would create a business tax system that has never existed anywhere in the world. The White House plan would enact a massive tax cut, mostly for the wealthy.

Each plan aims to reform both the individual and the business parts of the U.S. tax system. But although the two plans offer similar rate cuts for individuals, the proposed reforms are very different on the business side. The White House simply wants to slash taxes for all businesses. The Ryan-Brady plan would convert the current corporate income tax into a border-adjusted cash-flow tax—a tax on consumption rather than on income. Tensions over this idea among Republicans and businesses are running high. Exporters, such as Boeing and GE, have lined up behind it, whereas retailers and importers, such as Target and Walmart, are lobbying hard to stop it in its tracks.

The White House tax plan threatens to explode the national debt and, as a result, impede economic growth.

Although no official economic estimate of either plan is yet available, it is clear that the White House proposal threatens to explode the national debt and, as a result, impede economic growth. The Better Way plan is both more promising and more responsible than the White House’s outline. Still, the Ryan-Brady proposal would likely increase the national debt, disrupt global trade, harm some American companies and benefit others, cause financial problems abroad by dramatically raising the value of the U.S. dollar, and lead to pervasive and costly uncertainty. In the end, the Better Way plan is too disruptive and too risky for the United States to adopt. Nonetheless, it points tax reformers

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