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% and produce 1.7 million new jobs over the decade. Harvard economist Robert Barro was predicting that Trump’s overall economic agenda could boost the nation’s growth rate from 2% to as much as 4%.
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 healthcare, 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 Steve Mnuchin wants to get tax reform done by August, he needs to pare down this agenda, putting off individual tax reforms and border issues for next year. Otherwise expect TV ads against “tax cuts for the rich” to make some moderate GOP lawmakers go wobbly. Worse, a border adjustment tax will be lobbied to death because it creates winners and losers in every industry.
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% to 20% — Trump is pushing for 15% — and allows companies to write off investments in equipment and factories 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 January 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-TX)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 $1 trillion to pay for the tax cuts, the GOP is flirting with a 20% levy on all imports, and a break for U. S. companies that export. Trump initially labelled the idea “too complicated.” His instincts are good. Too many winners. Too many losers. Oil drillers win. Refiners lose. Detroit wins. Car dealers selling imports lose. Japanese automakers are already considering moving production facilities to the U.S. if the border tax passes. Factory workers here benefit. But consumers pay a lot more at Walmart.
With so much at stake, no wonder eight GOP senators are balking, including Tom Cotton of Arkansas, home of Walmart. Yet House Speaker Paul Ryan, who resisted changes to his Obamacare repeal bill, is making the same mistake again. He says border tax opponents “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 revenue.
5. Don’t count on Democrats. Senator Chuck Schumer has already ruled out supporting a tax break for “profitable and powerful corporations.” Never mind they’re the source of half the jobs in the U.S.
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.