Balancing the books
Tax cuts, reform are the right economic medicine
Putting aside for a moment the fact that some Democrats whose protests were mild at best as the national debt nearly doubled under Barack Obama have suddenly become deficit hawks, it’s important that Congress come to terms on a meaningful tax-cut package that also simplifies the system.
President Donald Trump and congressional Republicans are calling for a package of tax cuts that are, in fact, needed to make America more competitive and actually give us a long-term chance of taming the deficit. And Trump is hardly the first. John F. Kennedy, Ronald Reagan and Bill Clinton all championed tax cuts of one kind or another with positive results.
To be sure, there will be lots of haggling over details. But the proposal that will come out of the House Ways and Means Committee chaired by Rep. Kevin Brady, R-Texas, needs to have certain key elements:
A meaningful middle-class tax cut. That would be accomplished, at least in large part, by doubling the standard deduction. Make it retroactive to Jan. 1 of this year. Letting American families keep more of their own money will make their lives better and spur economic activity.
Cuts to the corporate income tax from the current level of 35 percent to 20 percent or less. We have by far the highest corporate tax level in the industrialized world, and it makes us much less competitive. And it has produced the wrongheaded result of American companies earning profits overseas but balking at bringing the money home to invest in American economic infrastructure. The high tax rate not only impacts return to shareholders, but it pushes American jobs overseas, results in higher costs to consumers and reduces the amount that is available to pay workers. The estimate of American corporate earnings kept offshore far exceeds $2 trillion.
Enact an aggressive depreciation schedule for the purchase of equipment and machinery. Letting company owners write off those expenses more rapidly will encourage them to invest in their companies, making them more viable and benefiting employees.
Simplify the tax code. This will be a challenge because much of the opposition to tax reform will come from the legion of lobbyists who represent clients who make big money because the system is so complex.
Do away with or modify the so-called “death tax.” This tax produces limited revenue and is mostly political. But if there is no stomach for eliminating it, significantly raising the exemption would insulate many privately owned businesses and farmers who now have to sell in the event of the owner’s death — to the benefit of big corporations. Raising the exemption to $100 million would protect wealth and still allow the tax on the Bill Gateses and Warren Buffetts of the world.
Credible groups complain that the GOP proposal will increase the deficit. While that may be true in the short run, the only way to tame the deficit is through economic growth in the annual range of at least 3 percent GDP. That kind of growth means people are working, companies are making and selling products and the government, in turn, reaps more tax dollars.
Deficits and debt do matter. But the deficit hawks have no realistic fix. Cut spending? Entitlement spending on things like Medicare and Social Security account for about two-thirds of the federal budget. They aren’t likely to be cut anytime soon. Cut defense spending? You can’t do that very well with rising Russian and Chinese threats.
So cuts won’t cut it.
Tax the rich? Opponents complain that’s what this package should accomplish. That’s a popular sound bite, but it ignores key facts. For starters, there aren’t enough of them.
Besides, according to the National Taxpayers Union Foundation, the top 1 percent of income earners in America paid 39 percent of all federal personal income tax in 2014. The top 10 percent accounted for nearly 71 percent of all personal income taxes paid.
The bottom 50 percent? They paid just 2.75 percent of all personal income tax.
If it takes one additional bracket for the highest income to make it more palatable to Democrats, it’s worth considering.
Our elected officials on both sides of the aisle need to get to work, with the administration, and come up with a meaningful tax cut and reform plan. Along with sensible regulation reform, investment in infrastructure and improving the job-related skills of American workers through education, the tax package is a critical part of the nation’s path to success in an increasingly competitive world.