Congress is now in the final wrestling match stage of creating a $1.5 trillion tax reform package. House and Senate Republicans must resolve differences in their bills in order to hand completed legislation to President Donald Trump.
You know Republicans want to get the deal done, and you know Trump will sign what Congress delivers. This has been a weird, ugly year — long on political drama and short on legislative accomplishments. The GOP needs to prove it can govern. If a Republican-controlled Congress and Republican president can’t fulfill a promise to cut taxes, what can they accomplish?
The rest of us care about outcomes, not crowing. Good tax reform should make a complex economy more efficient and ultimately put money in people’s pockets. Some tax deals go heavy on benefiting individuals. This legislation does some of that. But the larger opportunity is on the business side, providing relief and investment incentives to employers. Therefore, our focus is on whether this bill reshapes tax policy in a way that helps Americans become more prosperous by spurring job and wage growth. We believe this tax reform bill will strengthen the American economy and create wealth, so we support passage.
These massive tax reform packages don’t come around often. They are too difficult. The last big change came in 1986 under President Ronald Reagan, back when it was practically fashionable for lawmakers to do big deals across the aisle. This time Democrats stand in opposition as, for example, Republicans stood against Obamacare. Still, the country is weighing an epochal change to the economy, making this “an incredibly significant time in our public life,” U.S. Rep. Peter Roskam, one of the Republican tax reform leaders, tells us.
Any vote against this bill is a vote to maintain America as it looks today. Are you happy with the state of the economy since the end of the Great Recession eight years ago? You shouldn’t be. First, discard the impact of the stock market boom fattening your 401(k) since Trump’s election, because that’s due in part to anticipation of tax reform. Kill tax reform and you lose market momentum.
What you’re left with is what this nation has had: growth around 2 percent or less a year. That’s not fast enough to boost stagnant wages, increase the job participation rate or improve U.S. competitiveness vs. other countries. Passing this tax reform should get the economy to steady 3 percent growth. At that rate, the country generates trillions of dollars of new economic activity, creates jobs and increases household income – money to be spent or saved.
The tax bill helps employers by lowering the top U.S. corporate tax rate from 35 percent to about 20 percent. The final rate hasn’t been set, but it will be more in line with those of other nations. The bill also takes a big step to encourage companies to repatriate more than $2 trillion in profits that are parked overseas to avoid that 35 percent rate. Companies would get a chance to bring cash home at a one-time rate of about 14 percent. With those changes, companies will invest to grow. Without those changes, U.S. companies are more likely to move out of the country or be acquired by foreign entities.
Another provision of the tax bill encourages companies to buy more equipment by allowing them to immediately and fully expense the cost. Business investment is a big deal because, with a lower marginal tax rate, businesses can spend big to improve or expand their operations. And if XYZ Co. buys more trucks, it needs more drivers.
Our major concern with this bill is the cost. This plan may cost the government $1.5 trillion over a decade in which the Congressional Budget Office expects Washington to collect $43 trillion in revenue if the economy continues on its current, slow-growth trajectory. If economic growth rises to about 2.5 percent annually, this package could pay for itself. If it doesn’t, the nation’s $20 trillion debt would rise accordingly. Tax reform, then, is an investment in the economy. As Roskam puts it, “We’re buying an updated tax code and faster growth.”
One thing we hope that faster growth buys us all is a new national discussion about how to curtail spending and reduce the debt. The country can’t live by one side of the ledger. Eventually, revenue and expenditure need to come into alignment.