Tax Cut Proposals Could Be A Promising Sign That Republicans Can Get Something Done

President Trump and Congressional Republicans have unveiled the details of a tax reform plan that he, and they, say they believe will be a big political win. It is the first major legislative proposal from Congressional Republicans this year and could be a sign of actual progress.

The New York Times and the Wall Street Journal report that the plan would cut the top corporate tax rate from 35 percent to 20 percent, and the top personal income tax rate from 39.6 to 35 percent. There are numerous other changes included in the proposal as well.

Tax cut proposals include changes to personal and corporate taxes

It would also increase the lowest personal income tax rate from 10 percent to 12 percent. However, that higher rate would presumably be offset by a doubling of the standard deduction, to $12,000 for single taxpayers, and to $24,000 for married couples.

The Trump and GOP plan would collapse the existing seven tax brackets into three or four – at 35 percent, 25 percent and 12 percent, with the option of a fourth higher rate on the highest-income individuals.

Critics of the Trump/GOP plan from the left will likely seize on the higher 12 percent rate as evidence that Trump is cutting taxes for the rich at the expense of the poor. Critics of the Trump/GOP plan on the right will likely seize on the possibility of a rate higher than the proposed 35 percent would discourage economic growth by high-income individuals.

With regard to the lowest rate, the criticism ignores the reality that only those who pay taxes can get their taxes cut, and approximately 77.5 million Americans, constituting 45.3 percent of American households, pay no income taxes at all.

So it’s true that any cuts would disproportionately benefit higher income taxpayers. But the statistic is misleading, since those paying no taxes would continue to pay no taxes. It’s difficult to argue that the benefits to the rich are coming out of a poor person’s pocket.

In fact, even though the poor won’t see a direct benefit in the form of lower-than-zero taxes, they are likely to reap the economic rewards of a competitive corporate tax rate.

America’s corporate tax rate is simply too high

The top statutory corporate tax rate is the highest in all countries belonging to the Organization for Economic Co-operation and Development, although relatively few corporations actually pay in the top bracket.

According to the World Bank and International Finance Commission, the effective corporate tax rate is closer to 27.9 percent. That puts the U.S. at or near the top in OECD rankings.

Businesses that can lower their tax rates by moving overseas tend to take advantage of that opportunity, and that means fewer employment opportunities at home. A lower corporate rate will likely lure many of these wayward corporations back to American shores, which will likely mean more jobs for Americans

A tax cut is good, but where is the promised simplicity?

While tax cuts are generally good for economic growth, the tax code tends to become more complicated every time it’s revised. Americans also want tax simplicity, too.

Billions of dollars and perhaps billions of man-hours are spent complying with an increasingly convoluted system. Indeed, much of the code seems designed to perpetuate social engineering goals rather than simply finding the most effective and efficient way to raise revenue for the government.

Other than reducing the number of tax brackets from seven to three or four, none of Trump’s proposals seem focused on cutting through the red tape. That could be a missed opportunity.

A simpler tax code wouldn’t be the kind of easy target for Democratic carping that large tax cuts would be. Trump would be wise to look to tax simplification as a place to find common ground.

Of course, al of this speculation presupposes that the Republicans are capable of actually achieving something in the way of tax reform. President Trump is right that tax reform needs to show up on his desk sooner rather than later.

(Photo of Speaker of the House Paul Ryan of Wisconsin speaking at the 2016 Conservative Political Action Conference (CPAC) in National Harbor, Maryland by Gage Skidmore.)

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The Jack News brings a fresh pragmatism to our political world. We are committed to freedom, common sense, and choices beyond nationalism and progressivism. We want smaller government and more individual liberty.

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