On Sept. 27, the White House and congressional Republicans released a tax reform framework that will serve as a template to “achieve pro-American, fiscally-responsible tax reform.” Tax “frameworks” are never passed in their entirety, but if the plan released by Republicans is anything close to what eventually becomes law, all Americans will benefit substantially.
The framework is based on several pro-business principles: simplifying the tax code, providing tax relief for both large and small businesses, ending loopholes for special interests, and making the tax code more competitive in the global market.
For details on what’s in the framework, click here.
According to the framework, these reforms will allow “the vast majority” of Americans to file their taxes with a simplified postcard, potentially saving tens of millions of people fees paid to accountants and tax-advisory services.
By simplifying the tax code, Americans will have a better understanding of what they owe, limiting the number of tax “surprises,” and the increased standard deductions mean middle-class families, many of whom can’t take advantage of itemized deductions, will get a big tax break. This will be especially helpful for many lower-income families, because under the Republicans’ plan, the first $24,000 earned for married filers would be income-tax-free.
Perhaps the most important changes will be for businesses. Under the framework, the maximum tax rate applied to the income of small businesses operating as sole proprietorships, partnerships, or S corporations would be 25 percent. This is very important, because most small business owners’ profits are currently treated as personal income, meaning they pay individual income tax rates, which can be quite high for even moderately successful small businesses. The current top marginal rate is 39.6 percent.
Corporations would also benefit from a large tax cut. The corporate tax rate would plummet from 35 percent to 20 percent, which, according to the framework, is 2.25 percentage points less than the average corporate tax rate for industrialized nations.
Cutting the corporate tax rate down to a figure below the global industrialized average would have a dramatic impact on job growth. Over the past two decades, countless businesses, including many iconic American corporations such as Budweiser and Burger King, have moved their corporate headquarters to other countries to escape the high U.S. corporate tax rate, and more than $2 trillion remains stashed overseas.
By cutting the corporate tax rate and lowering taxes for small business owners, businesses would be much better positioned to compete globally, and businesses will have little reason to move their operations to escape crushing taxes.
It’s unreasonable to think all these reforms will become law, but if Republicans can manage to pass a tax reform package that looks anything close to the one they proposed on Wednesday, the changes would represent one of the largest tax cuts in the past century and would spur economic growth at breakneck speed, dramatically improving the lives of all Americans and putting Republicans in great position in 2020.
Justin Haskins (@JustinTHaskins) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is an executive editor at The Heartland Institute.
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