The long-awaited Republican tax reform framework was released Wednesday, endorsed by President Trump and congressional GOP leaders. Much commentary focused on “winners and losers,” but effective tax reform creates economic growth that benefits everyone.
The biggest driver of new economic growth will, if passed, be a dramatic reduction in the corporate tax rate. The current rate of 35 percent (39 percent when you add average state tax rates) is egregiously high. The average rate in other developed nations is 22.5 percent. The GOP framework proposes a rate of 20 percent, which would make American companies more competitive overnight.
As Trump said Wednesday, “This will be the lowest top marginal income tax rate for small and mid-size businesses in this country in more than 80 years.” While the left whines about corporate profits, everyone will benefit from a stronger economy. Remember that corporations don’t actually pay corporate taxes; their customers do, in the form of higher prices. Those higher prices make American goods and services less competitive, which means they can employ fewer people and at lower wages.
Analysis by the Tax Foundation found lowering the top corporate income tax rate to 20 percent eventually would create roughly 650,000 jobs and a 3.3 percent bump in the overall economy over the next decade or so. The resulting economic growth would lead to a roughly 3 percent increase in after-tax incomes for everyone from the struggling single mother to Warren Buffett.
Economic growth isn’t good just for its own sake. It is good because it alleviates a host of problems. It means more charitable giving, rising home values, higher participation in the labor force, better wages and higher tax revenue. It puts entitlement programs on sounder footing, reduces economic stress and puts more cash in everyone’s pockets. Since the prosperity created by the GOP framework will be broadly shared, it shouldn’t increase inequality that could be politically exploited by the left.
A simpler corporate tax code doesn’t just mean businesses would spend less time on paperwork and filing taxes, it means they can spend more time on productive endeavors, such as more innovation and product improvement. It also means big business won’t be able simply to hire the best tax accountants to beat the little guy. They’ll actually have to compete on the value of their goods and services.
Still, the framework leaves lingering questions about the details. The GOP should be applauded for letting the tax-writing committees figure these out rather than negotiating them in a small, closed group. But it’s nearly October. With all the tax experts in the GOP, it’s disappointing the process is not already further along.
By this point, we should already know where the new income tax thresholds are going to fall, so that the Congressional Budget Office, Joint Committee on Taxation, and outside groups can score the fiscal and economic effects of tax reform.
Still, the GOP tax reform framework is a great start. Here’s hoping it quickly becomes legislation then law, and thus quickly fosters economic growth and new well-paid jobs.