09.29.2017 0

Economic growth is dependent on fixing the tax code

Cartoon c/o Legal Insurrection.

By Natalia Castro

Republicans have finally released their tax proposal. While many are pleased, the devil will clearly be in the details for many who are still unsure if they should support the bill. A more modest approach has been taken from what the President originally entertained, but whether moderate Republicans and even some Democrats will be swayed enough is still unclear. As Republicans pivot toward taxes, many are hoping this long-awaited reform will be Congress’s first major legislative achievement.

The proposal centers around lowering tax rates for individuals and families and simplifying the code from seven tax brackets to three — at 12 percent, 25 percent and 35 percent, with the potential for an additional top rate for the highest income taxpayers.

While the tax plan’s specific details have yet to be released, the Republicans target had been something on the order of $5 trillion in tax cuts. Analysis from the Committee for a Responsible Federal Budget has found the real number is closer to $2.2 trillion in tax cuts over the next 10 years or $220 billion a year. While this appears less than conservative hopes, it is still 1.1 percent of GDP, making this tax cut second only in size to the 1981 Reagan cuts which fell at 2.89 percent of GDP over a four-year period post-enactment.

The conservative House Freedom Caucus was quick to back the framework of the bill, arguing it fulfills several Republican goals such as simplifying the tax code, allowing Americans to keep more of their money, and ending benefits to special interests that hinder competition. The statement said, “President Trump has delivered a forward looking tax reform framework that will let hard working Americans keep more of their money, simplify our system, end carve outs for special interests, and will help make our businesses competitive abroad. The Freedom Caucus looks forward to sending a final bill based on this framework to President Trump’s desk as soon as possible.”

Conservative groups echo this approval while remaining cautious that the cuts will be enough to stimulate the economy. Americans for Limited Government President Rick Manning explains, “The unfortunate fact is that our nation’s economy today has been stuck in neutral for more than a decade, not growing above 4 percent since 2000 and not above 3 percent since 2005. 3 percent GDP growth is now considered a fantasy when not too long ago it was the bare baseline expectation for U.S. growth. To get out of this permanent, stagnant, new normal of slow growth, flat wages and increasing economic despair, Congress needs to be bold in passing as large of a net tax cut as possible.”

However, without a single major legislative achievement this year, it is clear that conservative backing alone is not enough.

Senator John McCain has argued he will not support any legislation that is not approved on a bipartisan basis. Learning his lesson from the failed effort to repeal and replace Obamacare, President Trump has been quick to make this a goal as well, reaching across the aisle to Democrats to get on board with the tax reform strategy.

Trump has targeted Democrats seeking reelection in 2018. Trump singled out Indiana Democratic Senator Joe Donnelly this week, claiming, “If Senator Donnelly doesn’t approve it — because you know he’s on the other side — we will come here and we will campaign against him like you wouldn’t believe.” Trump continued to remind the crowd that the tax reforms invoked by his predecessors Ronald Reagan, a Republican, and John F. Kennedy, a Democrat, to simplify the tax code were never considered a partisan issue.

The President is also working with reelection ready Democrats, Claire McCaskill of Missouri, Heidi Heitkamp of North Dakota and Joe Manchin of West Virginia to garner bipartisan support.

Heitkamp traveled with President Trump to North Dakota and even appeared alongside him at an event on tax reform. She has yet to voice support for the tax plan but neither has she rejected it; rather than she has optimistically claimed she is eager to read into the details. Solidarity between the Heitkamp and Trump could signal a partnership that propels tax reform to passage.

If Republicans no longer have to rely on a party-line vote, they would have significant leeway in case moderate Republicans such as McCain, Sen. Susan Collins (R-Maine), and Sen. Lisa Murkowski (R-Alaska) choose to vote against the Republican agenda as they did on healthcare.

Senate Majority Leader Mitch McConnell has reaffirmed the importance of coming together on this issue. His Sept. 27, 2017, statement notes, “This is our once-in-a-generation opportunity to fundamentally rethink our tax code. We can unleash the economy — promoting growth, attracting jobs, and improving American competitiveness in the global market. Instead of sending jobs overseas, we can modernize our tax code to help bring strong investment and good-paying jobs home and keep them here… Many of our Democratic colleagues have voiced support for overhauling our tax code.  And throughout this process, I hope they will choose to work with us in a serious way. A fundamental overhaul of our tax code is a daunting task, and we have a lot of work ahead, but America deserves it.”

While the full details, along with exact numbers still need to be released, it is clear this tax overhaul could be the turning point for a Congress unable to pass significant reforms. With Republicans and some Democrats alike vying for a simpler tax system, the Republican plan could offer the moderation liberals want while stimulating the economy enough to change years of stagnant performance. The devil will be in the details which could induce support or destroy it.

Natalia Castro is a contributing editor for Americans for Limited Government.

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