With true game-changing tax reform one step closer to the finish line with the 2018 budget resolution passing the House and scheduled for the Senate vote during the week of October 16th, Washington policy wonks have had a field day debating and clashing swords over the tax reform framework GOP leaders released last month. Unfortunately, lost in the muddle of their pie charts, graphs and projections is how all of this will impact America’s consumers.
Consumer spending accounts for approximately 55 percent of our nation’s economy, and supports 61 percent of its employment. It seems then, that with the stated goals of creating jobs and economic growth, any tax reform proposal that is good for consumers will go a long way toward checking all the right boxes for pro-growth tax reform.
But one can’t spend as a consumer unless one first earns as a worker, and this is the nexus between earning and spending that most affects Americans looking to become better off financially. With real wages treading water since 1999, a tax cut that puts more money in peoples’ pockets is one half of the solution to increasing Americans’ standard of living through reforming the tax code, and one area where we’ll see bi-partisan agreement.
The other half of the solution comes by way of across-the-board tax cuts for small businesses and corporations, which numerous studies have shown have the effect of raising wages. More money in the company bank account not only increases the pool of financial resources over which workers can bargain for salaries, but also leads to more capital investment, increasing productivity and wages. The result is more purchasing power for consumers and new financial opportunities that were once beyond reach. This is a tax reform framework that is committed to achieving its stated goal of making the lives of average people better.
The tax framework also emphasizes simplicity and fairness, eliminating numerous deductions and loopholes, all of which work to the benefit of consumers. Eliminating special treatment for classes or industries works to eliminate those distortions in the market that steer behavior and resources toward a government agenda, not as the market dictates. It also creates a level of basic fairness in the system that doesn’t pit groups against each other, which itself will build consumer and investor confidence. Market efficiency and trust may appear to be abstract concepts, but they are very real in helping create the prosperity and growth that puts more money in our pockets.
Here in Washington, it shouldn’t be a surprise that the left was ready with their pre-planned attack on the GOP tax framework. Like clockwork, the liberal Tax Policy Center (TPC) released a report attacking it as a huge giveaway to the wealthy with little to no benefit for the middle and lower class. And like clockwork, the mainstream media ate it up. The only problem with their “analysis” is that numerous key details of the plan have yet to actually be released.
The TPC’s “hit job” on the GOP tax framework is about as reliable as a restaurant review where the writer only glances at the menu without ordering food, or a movie review based on a promotional poster. It’s laughable propaganda. House Budget Chairman Kevin Brady (R-TX) called it “a work of fiction that Stephen King would be proud of.” He could have also mentioned Sir Arthur Conan Doyle, as no economist would even put their name to the analysis, so it remains a mystery as to who actually wrote the thing; let alone who believes in its far-fetched speculations.
Tax reform is clearly an enormous and expansive topic, drawing in numerous economic factors such as deficits, interest rates, wages, trade, inflation, and a multitude of theories regarding the effect of each factor. But as the wonks and policy experts continue to parry over every little item, we must not lose sight of how critical it is to accomplish true and lasting tax reform, not just for the macroeconomic view, but for consumers and businesses drowning in stagnation. As noted, and, yes, named economists agree, the GOP tax framework is a great start for average Americans to finally get their heads above water.
Matthew Kandrach is President of CASE – Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.