The principal focus of tax reform should be economic growth, not the deficit. It would be incredibly shortsighted to sacrifice growth for the deficit, because growth will eliminate the deficit. Growth is the solution. Tax reform will promote growth. Democrats should be voting for growth.
Over the history of the American economy, the steeper the recession the stronger the recovery. Yet for the whole eight years of Barack Obama’s presidency, governing with Democrat economic policies, economic growth averaged less than 2 percent. But in less than a year, President Trump has rocketed the economy ahead with more than a 50 percent increase in growth. Tax reform, done right, will drive the economy beyond even 4 percent growth, to 5 percent or even 6 percent for a couple of years.
The tax reform includes a 20 percent corporate tax rate, which is very pro-growth, and adopts the principle of territoriality for business income earned abroad, as has every other developed country. That principle provides for taxation of income in the country where it is earned. The reform liberates the close to $3 trillion in retained profits held abroad to return home for investment in America, creating jobs and rising wages here rather than overseas. The 25 percent “pass-through” business rate for Subchapter S corporations, limited liability corporations, partnerships, sole proprietorships, is very pro-growth – and historic. Expensing 100 percent of capital investments in one year is the most pro-growth of all.
Everyone wins: higher wages and more jobs for middle-class and blue-collar workers. The poor, national defense, even the environment win as well. The $20 trillion national debt will pale in the face of booming economic growth.
Democrats no longer understand economic growth as they did in the Kennedy and Reagan years. That is why blue-collar workers and the middle class abandoned the Democrats in 2016, a trend that started in 2010 not just in national elections or for federal offices, but at the state level as well.
Democrats should vote for the tax reform plan because it helps those they claim to look out for and protect: low- and middle-income families. The first $24,000 for married couples, $12,200 for singles, is tax free, with the increase in the standard deduction. That cuts taxes for virtually all taxpayers who currently itemize. They can file on a postcard-sized return.
Democrats should vote for the pro-growth tax reform, because it cuts tax rates for the middle class and working people, to 12 percent, 25 percent and 35 percent. And it keeps the top rate of 39.6 percent for the top 1 percent earning over $1 million for married couples, $500,000 for singles. But it retains pro-growth effects by raising the threshold for the 39.6 percent rate from $470,000 today to $1 million for married couples, and from $418,000 today to a half-million for singles.
Democrats should vote for pro-growth tax reform because it keeps even more of the poor and lower-income individuals free from any income tax with the increase in the standard deduction, and increased child tax credit, while preserving the earned income tax credit. That reduces the rate to zero for everyone paying the 10 percent rate today.
The tax reform bill limits deductions for state and local property taxes to $10,000, another tax increase on the rich, as is the cap on deductible home mortgage interest, which applies to home mortgages of up to a half-million, down from the current cap of $1 million.
Eliminating the deduction for state income taxes is also a tax increase on the rich who rely heavily on that deduction. But it will have pro-growth effects as Democratic politicians in heavily “blue” states such as New York, New Jersey, California and Illinois find it necessary to cut their own taxes to be competitive. The other states will no longer be forced to protect them from their high tax folly through federal tax deductions.
Democrats should vote for pro-growth tax reform because it also eliminates the hated death tax, as their own grass-roots Democrats strongly support. Democrats can’t afford to lose any more of their voters to Republican officeholders next year. If Democrats come to their senses, tax reform would be ripe for bipartisan passage, liberating the party of Kennedy and Jefferson from the grip of no-growth “progressives.”
Published in Daily Times, November 13th 2017.