Alfonse D'Amato

Let’s get tax reform right

Posted

As Congress takes up the issue of tax reform, it would do well to look back to a successful tax overhaul that should be the guide for getting it done right again this time. Those major changes occurred during Ronald Reagan’s presidency. They involved significant adjustments in the U.S. tax code, and they were accomplished with bipartisan support. That happened because Reagan and his economic team understood how to navigate the reforms through a divided Congress.
Today, both houses of Congress and the White House are in the hands of Republicans, and though it might seem that that would make tax reform easier, it has not. While almost everyone agrees that reducing heavy business taxes to encourage the return of trillions of dollars currently sheltered overseas would be good for the economy — and could help fund much-needed infrastructure improvements — other proposed tax changes are ill-advised.
Unfortunately, a linchpin of the administration’s proposal is not a tax cut, but a huge increase, one that would fall heaviest on hard-pressed, working middle-class families. I’m referring to the proposed elimination of the federal deductions for both state and local taxes and home mortgage interest.
On Long Island, state and local taxes take a big bite out of family incomes. And home prices are high here, making the home mortgage burden even heavier. The possibility of losing both the local tax deduction and the home mortgage interest deduction is a double whammy that could wipe out most if not all of the benefit of proposed reductions in federal income taxes.
If these deductions are pulled out from under homeowners, it has been estimated that home values could drop as much as 20 percent. Home building, which is a tremendous economic force in New York state and across the country, could be severely impacted. None of this would be good for the U.S. economy, and could even push us into a recession.

That’s why our congressional delegation from New York is right to fight hard to preserve these deductions. Our own Long Island representative, Peter King, is leading the fight on the House side, and Sen. Chuck Schumer is battling for them in the Senate. If I could give President Trump just one piece of advice, it would be to tell his economic advisers to sit down with these and other congressional leaders and work out a viable path forward on tax reform. Reasonable compromises are possible to adjust allowable deductions on mortgage interest and state and local taxes that won’t penalize the very middle class taxpayers the president has pledged repeatedly to protect.
Trump recently showed that he can work effectively with those across the political aisle when he negotiated a bipartisan agreement to address an extension of the national debt limit, thereby avoiding a potentially damaging hit on the U.S. economy. The same approach should be applied to tax reform. That will mean hashing out reforms that steer clear of hurting the middle class while unduly benefiting the wealthiest Americans.
A good example is the federal estate tax. Rather than eliminating it, those who are shaping the reform package should retain it and cap it at a higher level. The same goes for the alternative minimum tax, which should be adjusted to protect middle-class taxpayers, but not to totally eliminate taxes on higher incomes.
Finally, the president has repeatedly said he wants to ensure that fabulously wealthy hedge fund managers pay a fairer share of taxes by reining in the “carried interest” dodge that costs the U.S. Treasury billions of dollars a year. There should be wide support in Congress for a reasonable change in the tax code to achieve this.
Just these few changes in the president’s tax proposal would make it fairer to all Americans and increase the chance that it would earn bipartisan support. The ultimate goal of any reforms passed by Congress and signed by Trump should be a tax code that treats all Americans fairly. Let’s get it right.

Al D’Amato, a former U.S. senator from New York, is the founder of Park Strategies LLC, a public policy and business development firm. Comments about this column? ADAmato@liherald.com.