This week, the House and Senate will vote on the Tax Cuts and Jobs Act (H.R. 1), the most significant tax reform and tax cut legislative initiative since the 1986 tax reform package passed under President Ronald Reagan. The bill would make sweeping changes to the individual and corporate codes, and eliminate Obamacare's individual mandate penalty.
The Tax Cuts and Jobs Act Conference report would unleash economic growth, increase wages for American workers, create new jobs, and provide tax relief to all Americans including the middle and working classes, main street businesses, and U.S. corporations. It accomplishes this by 1) cutting the corporate tax rate from 35 percent to 21 percent, 2) allowing pass-through businesses to deduct 20 percent of taxable income, 3) permitting full and immediate expensing of new and capital equipment for five years, 4) moving toward a territorial tax system that incentivizes foreign investment here in America, 5) lowering marginal tax rates for all Americans, 6) doubling the standard deduction, and 7) providing substantial relief from the death tax.
According to Heritage Foundation research, the GOP tax reform bill could increase long-run gross domestic product (GDP) by almost 3 percent, translating into an increase of $4,000 per household. The Tax Foundation estimates, if enacted permanently, the tax plan will increase wages by 3.3 percent and create roughly 1.6 million new full-time equivalent (FTE) jobs. This is exactly the kind of economic growth our country needs and what congressional Republicans and President Trump promised on the campaign trail.
Two important provisions contained in the tax plan is the near elimination of the state and local tax (SALT) deduction and the full elimination of the Obamacare individual mandate tax penalty. Eliminating the SALT deduction ends the practice of federal taxpayers subsidizing liberal state governments, which will put pressure on state and local governments to be more fiscally responsible. In fact, New Jersey Senate President Steve Sweeney said “We're going to have to re-evaluate everything” if the bill becomes law. Like the House bill, the Senate bill allow for a $10,000 deduction for property tax. Eliminating the individual mandate provides tax relief to working class Americans who can’t afford expensive Obamacare insurance plans. Additionally, both provisions raise significant revenue needed to lower marginal tax rates under Senate budget reconciliation rules.
It’s been far too long since Congress made lasting positive changes to the U.S. tax code – three decades in fact. Since that time, our convoluted 74,000-page tax code has suppressed American entrepreneurship, driven companies and jobs overseas, and made it harder and harder for American families to leave a better life for their children. Members of Congress justifiably concerned about the national debt should look to cut federal spending to balance the budget, not confiscate hard-earned income from individuals or punish profitable businesses. Congress cannot tax the American people into economic prosperity nor can it raise enough revenue to balance the budget if it continues to spend nearly $4 trillion dollars a year.
Adam Michel, Policy Analyst in the Thomas A. Roe Institute at The Heritage Foundation explains:
Holding pro-growth tax reform hostage over the deficit unwittingly makes fiscally responsible spending reforms harder. The deficit cannot be eliminated with tax increases. The notion that we can tax our way out of trouble denies the fundamental problem: The deficit is driven by uncontrolled spending. Tax reform that grows the economy can also ease the burden of paying down the debt. Robust economic growth is a necessary component of managing our debt. Pro-growth tax reform that allows for a larger and more robust economy means our debt relative to our output shrinks and makes the necessary spending reforms easier.
Due to the self-imposed $1.5 trillion dollar deficit tax cut box Senate Republicans elected to put themselves in, the Tax Cuts and Jobs Act is not as robust as tax reform should be under a unified Republican government, but it certainly is what President Reagan would call “half a loaf.” While Congress cannot tax the country into prosperity, it can and should deliver meaningful tax reform that spurs sustainable, long-term economic growth. The Tax Cuts and Jobs Act is a strong step toward that end. The time for pro-growth tax reform is now.