Trump-Style Tax Reform

The tax reform ideas Trump laid out will jump-start the economy.

president trump

Peter Roff

The president went to Missouri Wednesday to talk tax reform.

He couldn’t have picked a better place. Not only is Missouri part of America’s heartland, it’s a state he won handily in the 2016 election. And in order to get anything through Congress he’s probably going to need Democrat Claire McCaskill’s vote in the Senate so it makes sense to start lobbying her for it now.

As one of the most vulnerable of the Democrats up in 2018 McCaskill has to walk a fine line as do the other members of her party who must face the voters in little more than a year in states and districts Trump carried in the race for president.

The stakes are high. Corporate tax reform, which is expected to be at the center of any proposal that comes out of Congress, is badly needed. At 35 percent the U.S. corporate rate is the highest in the industrialized world. The system, meanwhile, is so ill-conceived it forces U.S.-based companies to leave trillions in profits stranded overseas where they are put to work creating jobs and expanding production and sales capacity in other countries instead of here at home.

Politically the issue is a winner. Tax reform, especially tax reform Trump-style, means higher wages and more jobs. No one wants to be against that, especially in the current environment where everyone was conditioned to believe the bleak assessment by prominent liberal economists that 2 percent annual growth was the new normal.

No, to get the nation back on its economic feet the tax code has to be changed. A study just out by Marquette University’s Andrew Hanson and Ike Brannon of The Cato Institute projects cuts in the corporate rate of between 30 and 57 percent could be expected to produce an increase in wages of somewhere between 15 and 28 percent and an increase in job growth of between 6 and 22 percent over what’s currently projected. That translates to a boom in just about anybody’s book – and that’s just what America needs.

Trump’s speech in Missouri was, the White House was careful to caution, more about broad themes and the need to reform the tax code than it was the specifics. Those, insiders say, are being left to the big four in Congress: House Speaker Paul Ryan of Wisconsin, Senate Majority Leader Mitch McConnell of Kentucky, Senate Finance Committee Chairman Orrin Hatch of Utah and House Ways and Means Committee Chairman Kevin Brady of Texas. They, along with Treasury Secretary Steve Mnuchin and National Economic Council Director Gary Cohn, constitute the “big six” who are making the decisions about what the framework for reform will look like.

What that will be is anybody’s guess – especially since the White House and congressional leaders have agreed to a process of “regular order” as the discussion moves through Congress. That’s the only way, they’ve been told, they have a hope of getting the votes from Senate Democrats needed to get the plan on the Senate floor if Senate Minority Leader Chuck Schumer, D-N.Y., and the rest of the “tax the rich” crowd decide to filibuster the motion to proceed to the debate on the bill.

That said there are still a lot of questions to be answered. The president had initially, for example, said he wanted any reform package to be revenue-neutral. Now he’s apparently leaving the decision about that to Congress even though it may be the most important of the dozens they will have to make while putting a plan together.

Having tax reform be deficit-neutral would mean some taxes may have to go up while others go down. It would also means rates on both the corporate and individual side might not come to the level where it would have the maximum effect on the U.S. economy but such rates would, temporarily, mean the deficit might rise. With the country currently in debt $20 trillion plus a short-term increase in the deficit might be a necessary evil in order to produce the level of economic growth needed to get the total debt back to historical levels as a percentage of the gross domestic product, which, a number of people who follow the issue agree, is a reasonable target.

Some, like economist Arthur Laffer who helped design the successful Reagan tax cuts, argue for big cuts early in order to generate the growth and revenue needed to do big reform later. He may be right but, if that’s the direction in which tax reform heads, it will be hard to explain to those who have for years lobbied to kill the death tax, for repeal of the alternative minimum tax, for the expansion of private retirement and health savings accounts and other policies that they’ll have to continue to wait. They’ve been told relief was just around the corner too many times to believe it once again – even if it’s President Trump making the promise.

Tax reform Trump-style is certain to boost the output of America’s economic engine. Cutting the corporate rate will create jobs and wage growth but might even, if done right, bring back jobs that for one reason or another been moved overseas. The possibility exists of boosting “take home pay” and “keep home pay” without touching the tax code on the personal side. The roaring ’20s, the soaring ’60s and the go-go ’80s all proved the theory that lower tax rates produced increased economy activity and higher rates of growth. Again, it’s up to Congress to fill in the details but making the tax code competitive again is the cornerstone of any effort to make America great again.

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