Budget Director Mick Mulvaney speaks during a daily press briefing at the White House.

In an interview with the Associated Press late last week, President Donald Trump said that he would release his tax plan tomorrow. Senior administration officials have subsequently walked back the level of detail that will be provided while confirming that an announcement will occur. On Sunday, Mick Mulvaney, director of the Office of Management and Budget, said that the announcement would include “some specific governing principles, some guidance … [and] some indication of what the rates are going to be.”

Mulvaney’s suggestion that the announcement may include an indication of the administration’s proposed rates and little else is not surprising, as lower rates appear to be the only element of the plan that all of the relevant players agree on both in and outside of the administration. In the final iteration of his campaign plan, then-candidate Trump proposed a 15 percent corporate rate, an optional 15 percent rate for pass-through businesses, and a maximum rate of 33 percent for individuals. Speaker of the House Paul Ryan (R-WI) has proposed a 20 percent corporate rate, a maximum rate of 25 percent for pass-through businesses, and a maximum rate of 33 percent for individuals as part of the Better Way plan.

The Trump administration is in the unusual (but in some ways enviable) position of having already indicated that it is engaging in a substantial rewrite of the campaign’s tax proposals. This post-inauguration rewrite offers a unique opportunity to revisit the substance of the campaign proposals out of the glare of the campaign trail. Yet if tomorrow’s announcement confirms the Trump administration’s commitment to rates akin to those announced previously—which seems highly likely in light of yesterday’s press reports—then it could put the White House on the path to tax cuts rather than tax reform even before the plan has been fully developed, and even if the revenue target remains unknown.

The core issue in tax reform is defining the tax base. Since 1986—the previous time Congress enacted comprehensive tax reform—would-be tax reformers have focused on two issues. First, reformers across the political spectrum want to eliminate wasteful tax expenditures that provide special treatment to a favored group at the expense of the general public. (A tax expenditure is a provision of tax law that provides preferential treatment for a certain type of income or spending such as the exclusion from taxable income of employer-provided health insurance premiums and the deductions for home mortgage interest, state and local taxes, and charitable contributions.) And second, some reformers advocate for a shift from the hybrid income-consumption tax base of the current income tax in the direction of a pure consumption tax base.

Setting aside the relative merits of consumption and income taxation, there is broadly shared agreement on the proper design of a consumption tax. In particular, whether implemented as the Hall-Rabushka flat tax or the Bradford X-tax, or instead as a value-added tax, a retail sales tax, or a consumed-income tax, well-designed consumption tax proposals retain a tax on business cash flow at rates consistent with the taxation of wage income. (Business cash flow is the difference between receipts and spending. A cash flow base contrasts with an income base in that the income base does not allow a full deduction in the year an asset is purchased when that asset retains value over an extended period of time.)

Notably, however, the business tax rates suggested by the Trump presidential campaign and the House Republican Better Way plan are far below the generally applicable tax rates. While one could argue that residual rates on capital gains and dividends for C corporations partially offset this discrepancy, the option to defer realization would create opportunities for large-scale tax avoidance using strategies designed to exploit deferral and thus render them largely ineffective for this purpose. And, of course, pass-through businesses would not be subject to such taxes.

What is the result of changes in tax law such as those proposed by the Trump campaign and House Republicans? While the precise answer will ultimately depend on the yet-to-be-determined details of the package, the rates already tell the broad story. These reforms would shift the U.S. tax system in the direction of a consumption tax but at the same time create a generous new tax benefit for people who can characterize their income as business income. That is, the package would shift the tax system not only toward a system more reliant on consumption taxation, but also toward a two-tier tax system under which wage earners pay at a higher rate than those who derive their income from a business, all else being equal. The proposed reforms would do this by creating a new tax expenditure for people with business income that, similar to other wasteful tax expenditures, would distort economic decisions, create opportunities for avoidance, and cut taxes for a favored constituency at the expense of the broader public.

As an economic matter, the implications of this new tax expenditure for business income are unattractive. The rate cuts would deliver windfall gains to business owners based on investments that have been made in the past, which would now be taxed at a lower rate. And they would provide preferential taxation of business income attributable to market power, rents, and luck, and to disguised labor income (labor income shifted from the individual base to the business base through tax planning). The changes in tax law would create a preference for these sources of income at precisely the time research suggests they account for an increasing share of the corporate tax base. Finally, the preference would create a massive new compliance challenge for the Internal Revenue Service in policing business owners’ efforts to shift labor income into the business tax base.

The potential for large-scale tax avoidance as a result of the shifting of labor income into the business tax base has already led to challenges for congressional tax staffers attempting to flesh out the details of the plan. Well-designed consumption taxes avoid the need to distinguish between types of income by maintaining the cash-flow tax at a rate aligned with the individual system and instead allowing expensing of investments. This design cleanly distinguishes the normal return on capital from other types of income.

The reason to avoid this well-understood approach is an apparent desire to provide preferential tax treatment of income derived from market power, rents, and luck, and for disguised labor income, possibly in the hopes of boosting entrepreneurship. Yet there is little reason to think that an open-ended tax preference for income derived from market power, rents, and luck—or based on the ability of one’s tax advisers to re-label wages business income for tax purposes—relates in any coherent way to socially valuable entrepreneurship, let alone that this link would be strong enough to justify privileging income from these sources over all other sources. The purpose of tax reform is to eliminate poorly justified tax expenditures, not to create new ones.

Finally, while many politicians and analysts point to the difference between tax rates on business income in the United States and corporate tax rates abroad as evidence of the need for rate cuts for U.S. businesses, this comparison is inapt. First, there are numerous options for targeted reforms to address the challenges evident in the U.S. international tax system, including worldwide consolidation, formulary apportionment, the Obama administration’s minimum tax approach, and border adjustments such as those in the House Republican Better Way plan and in value-added taxes around the world. Would-be reformers could adopt any one of these approaches. A rate cut is a poor substitute for a targeted reform directly addressing the root cause of the problem.

Second, the portion of income attributable to sales in a country with a value-added tax and derived from market power, rents, and luck, or consisting of disguised labor income is included in the value-added tax base. Thus, comparing only the corporate rate across countries dramatically understates the rate of tax imposed on these types of income in countries with value-added taxes.