by Lil Tuttle
Following through on his campaign promise to jump start the U.S. economy, President Trump unveiled his plan to overhaul and simplify the tax code. Key features include:
- cutting the current seven tax rate brackets to three: 10%, 15%, and 35%
- reducing corporate tax rates, currently one of the highest in the world at 35%, to 15%; and eliminating the special 3.8% Obamacare capital gains tax that disproportionately affected small businesses;
- doubling the standard deduction for married couples from $12,000 to $24,000;
- retaining deductions for home mortgages, charities, and retirement savings;
- eliminating the Alternative Minimum Tax (ATM) that was originally intended as a surtax on tax high income earners but over the years snagged many middle income taxpayers in its web;
- eliminating personal deductions for state and local taxes that inadvertently forced taxpayers in low-tax states to subsidize high-tax localities such as New York; and
- eliminating the death/estate tax that disproportionately affected small family and farming businesses.
“A coalition of businesses is praising President Trump’s tax plan,” reports The Hill, “arguing that it would boost the economy and stop companies from moving overseas.” Left-of-center politicians and media oppose the plan.
Libertarian Richard Epstein argues “the Trump proposal pushes the ball in the right direction.” He explains:
Any successful system of taxation must juggle three separate ends. The first is to impose as little drag as possible on economic productivity. The second is to minimize compliance costs for both the government and taxpayers. The third is to introduce some measure of distributional equity among taxpayers …
Unfortunately … the demand for redistribution is in deep tension with the first two ends, which tend to reinforce each other.
One reason why the Democrats find it so easy to tee off on Trump’s tax plan is that they only evaluate taxes along a single dimension—redistribution from rich to poor. Why else would the New York Times’ headline scream: “Tax Overhaul Would Aid Wealthiest”?
Epstein maintains that “the highly redistributive taxes of the modern social welfare state” creates an economic environment in which “growth suffers, which, in the long run, hurts everyone across the income spectrum.”
“The point of the Trump tax cut is to get more jobs and higher wages,” argues Stephen Moore in All You Need is Growth. “America needs real and sustained growth of 3% or 4%.”
If we can achieve 3.4% growth for the coming decade, then we lower the deficit by roughly $4.5 trillion over the decade. … A 3 percent-plus growth rate also means that the [national] debt as a share of GDP goes down every year and eventually falls to its lowest level since the 1970s. The trillions of dollars of unfunded liabilities in Medicare and Social Security wouldn’t disappear entirely, but they would become very manageable to deal with.
After the redistributive policies – and the “abysmal 1.9%” growth rate – of the Obama years, the nation needs a shot in the economic arm. President Trump’s tax plan may just deliver it, if the Congress will enact it.