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.
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 Trump’s overall economic agenda could boost the nation’s annual growth rate from 2 percent to as much as 4 percent.
But when House Republicans failed to pass the ObamaCare repeal last week, 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 fire up the economy. The House GOP plan includes corporate-tax cuts, 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 GOP 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 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 Jan. 1, 2017.
2) Trump should take the lead. Last week’s health reform failure shows the House GOP is not up to passing tough legislation on its own. Yet already, the gang that couldn’t shoot straight when it came to repealing ObamaCare is demanding the president rely on its version of tax reform, as House Ways and Means Chairman Kevin Brady (R.-TX) urged 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 percent levy on all imports, and a break for US companies that export.
Trump initially labeled the idea “too complicated.” His instincts are spot on.
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 United States if the border tax passes, so 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 Ronald Reagan had hamstrung himself like that, there would have been no Reagan economic revolution. As the Tax Foundation confirms, tax cuts spur growth and ultimately yield more revenue.
5) Regrettably, don’t count on Democrats. Sen. Chuck Schumer has already ruled out supporting a tax break for “profitable and powerful corporations.” Never mind they provide half the private-sector jobs in America.
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.
Betsy McCaughey is a senior fellow at the London Center for Policy Research.