Here's Why the Tax Reform Debate Fails Business Owners on Both Sides

My dad is more liberal than I am, so his opposition to tax reform wasn't a surprise. "When I was in the garment business, the decisions I made around hiring and manufacturing had nothing to do with my tax rate," he argued.

So I thought about how we make decisions on hiring, compensation and growth here at Tusk Holdings. We hire more people when we have enough new business to merit the cost. The tax rate doesn't impact it either way. But we also pay 100 percent of everyone's benefits and we've historically increased everyone's compensation every year. As we keep growing, those costs have gone from a "why not?" to a "can we really afford this?"

A lower tax rate would make it easier for us to ensure everyone keeps making more money. It's not axiomatic that lower taxes will help our business, nor is it at all true that lower taxes would exacerbate inequality.

The problem with the current debate around tax reform.

The problem with the current debate around tax reform is that neither side is willing to question their own beliefs. Will lower taxes across the board stimulate more hiring, more manufacturing and more growth? A reduction in the tax burden for S-Corporations would likely go a long way.

Even though small and medium businesses carry the U.S. economy, they pay a disproportionate amount of taxes. Most small businesses can't claim capital tax gains or carried interest. They can't hire expensive lawyers and accountants to maximize every loophole. So they just pay -- a lot. Lower taxes would allow them to grow. Claiming otherwise is not only false, it tends to reflect arguments from people who have spent their careers in the public or non-profit sectors and never had to make payroll.

With that said, the notion that lower taxes in all forms automatically lead to growth is empty. Cutting taxes for some (small businesses especially) could impact hiring. Cutting taxes for others only puts more money in their pockets, which isn't necessarily a bad thing but also isn't necessarily the right public policy.

But at the same time, the other side's arguments are equally hollow. I believe in the power of government to solve collective action problems. But having spent four years running a government (as Deputy Governor of Illinois), I also know there's not a direct correlation between the amount of money government has to spend on a problem and its ability to solve the problem.

If money alone were enough, we'd have the best schools and best health care systems in the world. Instead, we get poor results for extraordinarily high costs. Far too many people who believe in the power of government and genuinely want to do good are often too easily satisfied with just passing a bill, allocating money and then not looking too hard to see if their idea actually worked. So pumping more money into the government through higher taxes isn't necessarily useful either.

If we were going to be truly intellectually honest about tax reform, Republicans would seriously analyze the impact of each type of tax and determine whether reducing that particular tax would lead to meaningful economic growth. In some cases, the honest answer would be yes. In others, it'd be no.

The honest truth about tax reform.

And if we were going to be truly intellectually honest about tax reform, Democrats would seriously analyze the efficacy of each major government program and determine whether that program actually achieves its underlying goal. In some cases, the honest answer will be yes (like food stamps) and in other cases, it will be no (like much of our current education system).   

The arguments both sides are making right now ring hollow because they're mainly just parroting the talking points of their donors, political supporters and the myriad special interests who move votes in their primary. Few from either party are honestly looking at the efficacy of their beliefs, and the vast majority of them are certainly unwilling to question whether their core beliefs actually work.

So will we get tax reform? Probably yes -- the GOP likely won't retain the House majority without it, so odds are they'll pass something. Will it automatically help the economy? Not necessarily. Will it automatically create more inequality or deprive government of funding for necessary programs? Not necessarily.

For as long as our elected officials only look at the politics of most issues -- and for as long as few people bother to vote in most elections -- we'll continue to waste valuable taxpayer money and we'll continue to diminish the people's faith in their own government. The tax fight, sadly, shows no sign of bucking either trend. Tax reform or not, until we participate more and demand more of our leaders, we deserve exactly what's in store for us.

Published in Inc.

Bradley Tusk