Whew. We finally did it!
After an exhaustive year-long effort, President Trump delivered a pro-growth tax cut package just in time for the holidays. I am excited both that the passage of this legislation will increase American competitiveness and also that, after today, I won’t need to write any tax-cut columns for a while (until we go bigger and bolder next go-around)!
While not perfect, the Tax Cuts and Jobs Act achieves a laundry list of reforms that will facilitate President Trump’s ongoing streak of economic improvement. The bill provides much-needed relief for the overwhelming majority of American taxpayers and ensures that businesses in your neighborhood will have more money to spend hiring workers and raising wages — with less of their money funneled into Washington, D.C.
Here is a wrap-up of the most important takeaways from the bill:
Wow, a 21 percent business tax rate!
This is a serious marginal rate cut for American businesses — and an important one. The marginal tax rates on American businesses are no longer the laughing stock of the developed world (which has steadily lowered its corporate tax rates), and it shows President Trump meant business when he said he would Make America Great Again. There is no doubt in my mind that the only reason we landed on a 21 percent business tax rate was because President Trump fought so hard for a 15 percent. Trump’s “Fight for 15” paid off — he knows The Art of The Deal!
An across-the-board rate reduction for individuals.
This is was a huge victory. Under the House of Representatives bill, marginal tax rates actual went up for some filers. Additionally, the House bill also created a new “millionaires bracket” which left the top rate entirely unchanged. The marginal rate hikes in the House bill ignored the basic tenets of supply-side economics, which holds that marginal rates are crucial because they impact the last dollar of one’s earnings — their most important dollar. The marginal rate hikes, as well as the creation of a new millionaire’s bracket, amounted to a total surrender to the Democrats on class warfare rhetoric.
Thankfully, Mitch McConnell and Orrin Hatch (whom I see just announced his retirement as I am writing this, and will be deeply missed) righted the ship when the bill advanced to the Senate. The Senate bill delivered an across-the-board tax cut at every income level, including the highest income earners. And yes, Tax Cuts are a Good Thing, Even for the Rich.
Miraculously, the bill managed to defy political gravity by actually improving in conference committee, which brought the top marginal rate down from 39.6 percent to 37 percent. Mitch McConnell’s leadership made this huge supply-side victory possible. Bravo!
Drill, baby, drill!
The Tax Cuts and Jobs Act also featured a provision that will open up new land in Alaska for oil and gas drilling. While this provision has received little fanfare in light of all of the other goodies thrown into the bill, ANWR has been a priority for conservatives in Congress for decade. This was another big win for the Trump administration to close out the year.
Repealing Obamacare’s individual mandate.
The individual mandate is a tax on low-income Americans. Period.
Households should not be penalized for refusing to buy an overpriced Obamacare plan (I should know; I have one). And Americans especially should not be forced to pay the tax while Congress affords itself an annual bailout from Obamacare.
That said, with the mandate now repealed, Congress should turn its attention to tackling health care next. Obamacare’s slow collapse will continue, staved off only by infinite taxpayer bailouts to insurance companies. As more insurers drop Obamacare plans, the urgency to replace the law is growing by the day.
The next tax bill should re-examine the treatment of deductions.
Capping and eliminating deductions is a good thing — I support a low-rate broad-base flat tax. But when eliminating or capping deductions, in a great tax reform bill, one should lower rates commensurately so that the deduction is unneeded or unnecessary in the first place.
Under this bill, roughly 5 percent of taxpayers will pay more due to the fact that deductions like SALT are capped, and the tax rate cuts are not enough to offset the added burden (this problem befalls mainly ‘working rich’ filers in blue states). True, 5 percent is a small portion of our population, but this was an avoidable problem. It is my hope that the next tax bill will eliminate SALT all together and also drop rates significantly for all filers to more fully avoid this occurrence. Next time, we should also eliminate the SALT deduction on the corporate side, which was unfortunately left unchanged.
On the deduction front, I also hope that our next tax bill will rethink the expanded child care tax credits. As a millennial, I’m not thrilled about the average person in my generation subsidizing the childcare costs of older generations — especially when the average millennial does not have kids of their own. Furthermore, this is simply not the most pro-growth way to “spend” in a tax cut.
Taken altogether, President Trump delivered a solid tax cut bill that has already born fruit. Many corporations have announced their plans to raise wages, expand investment, and hire new workers, and the stock market rally is still going strong. The increased economic growth resulting from this bill should also serve as an important reminder that lower taxes are key to American prosperity, and perhaps will also increase the appetite for greater tax reform in the future.
This was a big victory for American competitiveness globally. Congratulations to all who made it happen!
Photo credit: Gage Skidmore