Trump’s Tax Win will mean More Money in Your Wallet
If you’re hunting for a job, hoping for a raise or depending on a retirement account, your future hinges on President Trump’s next big undertaking, cutting taxes.
And the picture looked rosy until last week. After the election, stocks soared on expectations that tax cuts would ignite an economic boom. The nonpartisan Tax Foundation was estimating that the Republican tax plan would lift wages nearly 8 percent and produce 1.7 million new jobs over the decade. Harvard economist Robert Barro was predicting that Trumps overall economic agenda could boost the nation’s growth rate from 2 percent to as much as 4 percent.
But when House Republicans failed to pass Obamacare repeal last Friday, it set off alarms that the Trump administration might lack the moxie to deliver its agenda.
As with health care, the path to tax reform is littered with landmines. Here’s how Trump can sidestep them and succeed.
1. Pass corporate tax cuts first to get the economy roaring. The House GOP plan includes corporate tax cuts, tax breaks for most individuals and something new, a border adjustment tax. If Treasury Secretary Steven Mnuchin wants to get tax reform done by August, he needs to pare down this agenda. Cutting top rates for high earners will provoke demagoguery and scare off moderate GOP lawmakers. The border adjustment tax creates so many winners and losers in each industry that it will be lobbied to death.
Instead, start with what has universal Republican support — reducing America’s corporate tax rates — the highest in the developed world.
The GOP plan slashes rates from 35 percent to 20 percent — Trump is pushing for 15 percent — and rewards companies for investing in equipment by allowing them to write off the costs immediately instead of over several years. Economist Larry Kudlow calls these changes “growth propellants.” To accelerate the impact, lawmakers can make the cuts retroactive to Jan. 1, 2017.
2. Trump should take the lead. Last week’s health reform failure shows the House GOP is not up to the task. Yet already, the gang that couldn’t shoot straight on repealing Obamacare is demanding the president rely on their version of tax reform, as House Ways and Means Chairman Kevin Brady, R-Texas, urged on Sunday. Fortunately, the White House quickly countered that Trump is “driving the train on this.”
3. Beware of the border tax. To raise a $1 trillion to pay for the tax cuts, the GOP is flirting with a 20 percent levy on all imports, and a break for U.S. companies that export. Trump initially labeled the idea “too complicated.” His instincts are good. Too many winners and losers. Oil drillers win, but refiners processing imported crude lose. Detroit wins, but car dealers selling imports lose. Consumers pay 20 cents more per gallon at the pump and a lot more at Wal-Mart. But factory workers here benefit. Japanese automakers are already considering moving production facilities to the U.S. if the border tax passes.
With so much at stake, no wonder eight GOP senators are balking, including Tom Cotton of Arkansas, home of Wal-Mart. Yet House Speaker Paul Ryan, who resisted changes to his Obamacare repeal bill, is making the same mistake again. He says opponents of the border tax “simply don’t understand how it works.”
4. Tolerate deficits short term. Ryan and fellow deficit hawks insist tax cuts have to be offset with tax hikes or spending cuts immediately, If President Reagan had done that, there would have been no Reagan economic revolution. As the Tax Foundation confirms, tax cuts spur growth and ultimately yield more tax revenue.
5. Don’t count on Democrats. Senate minority leader Chuck Schumer has already ruled out supporting a tax break for “profitable and powerful corporations.” As if class warfare is the answer.
While Dems squabble over how to divvy up the economic pie, Trump and Republicans are trying to grow a bigger one. If you work for a living, it will mean more money in your wallet.
