To­ward real tax re­form

While bi­par­ti­san­ship can be ac­cept­able, a ‘zero sum’ men­tal­ity is not

The Washington Times Daily - - COMMENTARY - By Lewis K. Uhler and Peter J. Fer­rara Lewis Uhler is founder and pres­i­dent of the Na­tional Tax Lim­i­ta­tion Com­mit­tee and the Na­tional Tax Lim­i­ta­tion Foun­da­tion. Peter Fer­rara is a se­nior fel­low at the Heart­land In­sti­tute, a se­nior pol­icy ad­viser with the

The evening news and front pages are dom­i­nated by nat­u­ral dis­as­ters. But our fed­eral tax code is an un­nat­u­ral dis­as­ter stran­gling Amer­ica with long-term stag­na­tion. To re­store boom­ing growth, Amer­ica needs tax re­form as pro­posed by Pres­i­dent Trump and Repub­li­can Con­gres­sional lead­ers, who are vir­tu­ally “singing off the same sheet.”

But Mr. Trump’s re­cent “deal” with Sen. Chuck Schumer and Rep. Nancy Pelosi on the debt limit raised ques­tions on tax re­form’s fu­ture. While “bi­par­ti­san­ship” is of­ten ac­cept­able, if not pos­i­tive, the Schumer/ Pelosi tax re­form driven by Bernie San­ders/El­iz­a­beth War­ren phi­los­o­phy is not. They re­main gripped by a “zero sum men­tal­ity” — for one per­son to gain in tax re­form an­other must lose.

To ad­vance their “zero sum” view of the world, lib­er­als and their Wash­ing­ton “bean coun­ters” de­mand “rev­enue neu­tral­ity”: for ev­ery tax rev­enue dol­lar cut there must be a new rev­enue dol­lar added. They can’t ac­cept the re­al­ity that Pres­i­dent Kennedy’s and Pres­i­dent Rea­gan’s tax re­forms made ev­ery­one bet­ter off, dra­mat­i­cally grow­ing our na­tion’s econ­omy.

For­tu­nately, some com­mon-sense Democrats of­fer true bi­par­ti­san so­lu­tions. In her re­cent Wall Street Jour­nal ar­ti­cle, “Why Cor­po­rate Tax Re­form is a Bi­par­ti­san Cause,” Laura Tyson, Pres­i­dent Clin­ton’s chair­man of the Coun­cil of Eco­nomic Ad­vi­sors, urged sharp re­duc­tions in U.S. cor­po­rate tax rates, not­ing that be­tween 2000 and 2016 the num­ber of For­tune 500 com­pa­nies head­quar­tered in the U.S. de­clined by 25 per­cent, as cap­i­tal and jobs fled.

Ear­lier in 1996, af­ter House Speaker Newt Gin­grich and con­gres­sional Repub­li­cans fi­nally “forced” Mr. Clin­ton to sign the “Rea­gan Wel­fare Re­form” leg­is­la­tion, Ms. Tyson and other bi­par­ti­san Democrats com­bined with Newt to lasso run­away spend­ing and pro­duce four back-to-back years of bud­get sur­pluses. That’s what to­day’s low-growth fis­cal dilemma re­quires: ma­jor growth-in­duc­ing tax re­form fol­lowed by se­ri­ous spend­ing con­trol.

Wealth cre­ation and eco­nomic growth are pre­cisely the for­mula for wage (and job) in­creases for ev­ery­one in our na­tion, not just for the top 1 per­cent who did well un­der Pres­i­dent Obama (world­wide stud­ies con­firm that 70 – 90 per­cent of ev­ery cor­po­rate tax dol­lar is borne by work­ers — not share­hold­ers or cus­tomers — in the form of re­duced wages and fewer jobs).

When Pres­i­dent Kennedy en­tered of­fice in 1961, the top in­come tax rate was 91 per­cent. Mr. Kennedy pro­posed to cut all in­come tax rates across the board by about 23 per­cent, re­duc­ing that top rate to 70 per­cent. In pro­mot­ing his tax cut, Mr. Kennedy said:

“It is a para­dox­i­cal truth that tax rates are too high to­day, and tax rev­enues are too low, and the sound­est way to raise rev­enues in the long run is to cut tax rates …[A]n econ­omy con­strained by high tax rates will never pro­duce enough rev­enue to bal­ance the bud­get, just as it will never cre­ate enough jobs or enough prof­its.”

He added, “Our true choice is not be­tween tax re­duc­tion, on the one hand, and the avoid­ance of large fed­eral deficits on the other … It is be­tween two kinds of deficits — a chronic deficit of in­er­tia, as the un­wanted re­sult of in­ad­e­quate rev­enues and a re­stricted econ­omy — or a tem­po­rary deficit of tran­si­tion, re­sult­ing from a tax cut de­signed to boost the econ­omy, pro­duce rev­enues, and achieve a fu­ture bud­get sur­plus.”

The year af­ter Mr. Kennedy’s tax cuts were adopted, U.S. News and World Re­port ex­claimed, “The un­usual bud­get spec­ta­cle of sharply ris­ing rev­enues fol­low­ing the big­gest tax cut in his­tory is be­gin­ning to as­ton­ish even those who pushed hard­est for tax cuts in the first place.” Arthur Okun, Mr. Kennedy’s chief eco­nomic ad­vi­sor, es­ti­mated that the tax cuts ex­panded the econ­omy in just two years by 10 per­cent above where it would have been.

Sim­i­larly, Pres­i­dent Rea­gan cut in­come tax rates for ev­ery­one by 25 per­cent in 1981. No one pre­tended the cuts would be rev­enue neu­tral. Those tax rate cuts, among other pro-growth Rea­gan re­forms, caused boom­ing eco­nomic growth. Dur­ing the first seven years of that boom, the econ­omy grew by al­most one-third, the equiv­a­lent of adding the en­tire econ­omy of West Ger­many, the third largest in the world at the time, to the U.S. econ­omy.

In 1984 alone, real eco­nomic growth boomed by 6.8 per­cent, the high­est in 50 years. Nearly 20 mil­lion new jobs were cre­ated dur­ing Mr. Rea­gan’s re­cov­ery, in­creas­ing U.S. civil­ian em­ploy­ment by al­most 20 per­cent. Be­cause of that boom­ing growth, fed­eral rev­enues dou­bled while Mr. Rea­gan was pres­i­dent, de­spite the dra­matic cut in in­come tax rates.

The pro­posed tax re­forms of Mr. Trump and the Repub­li­can con­gres­sional lead­er­ship would cre­ate sim­i­lar boom­ing growth. Con­ser­va­tives should sup­port tax re­form with­out call­ing for rev­enue neu­tral­ity, just as they sup­ported Mr. Rea­gan’s tax rate cuts. Eco­nomic growth would make the cuts more than rev­enue neu­tral. Af­ter just a few years, they would be rev­enue pos­i­tive, as they were un­der Mr. Rea­gan and Mr. Kennedy.

IL­LUS­TRA­TION BY LINAS GARSYS

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