This week, the Senate has the opportunity to vote on comprehensive tax reform legislation that reduces taxes for families and individuals of every income level, dramatically simplifies the complex code, and reduces taxes on small and large businesses.
If passed and signed into law, this legislation would dramatically increase economic growth, wages, and take-home pay and simplify the tax code so that it is no longer rigged to benefit the few well-connected in our society.
Even though the GOP’s Tax Cuts and Jobs Act reduces taxes and reforms the code for businesses and individuals, the plan has faced criticism.
Some say the plan does not cut taxes enough for the middle class, while others say the plan purely benefits the wealthy. In each case, this criticism is off the mark – the tax plan gives strong rate reduction for every income level, with the biggest winners being middle-class families.
Rate Reduction and Simplification for Families and Individuals
The biggest winners of the Senate’s Tax Cuts and Jobs Act are middle-class families. Under this legislation, a family of four earning the nationwide median income of $73,000 will see a tax cut of $2,200 – nearly 60 percent.
The plan ensures tax reduction across the board through the reduction of almost every tax bracket, the doubling of the standard deduction to $12,000 ($24,000 for a family), the expansion of the child tax credit from $1,000 to $2,000, and the repeal of the Alternative Minimum Tax.
The Obamacare individual mandate tax penalty is also eliminated, relieving families across the country from one of the most regressive taxes in the code. Currently, 79 percent of those paying the individual mandate tax make less than $50,000, while 37 percent make less than $25,000.
The current 75,000+ page tax code results in significant complexity for taxpayers, and more than 90 percent of Americans say the tax code is too complex, resulting in significant costs for people across the country.
According to the Tax Foundation, Americans will spend more than 8.9 million hours complying with the tax code, costing $409 billion. About 2.6 billion hours will be spent complying with individual income taxes, costing $98 billion each year. Similarly, the National Taxpayers Union Foundation estimates that individuals spend 1.8 billion hours on 1040 forms each year, costing $262 billion every year.
The many reforms in this tax plan such as the expansion of the standard deduction and the repeal of many itemized deductions and distortionary credits will result in dramatic tax simplification. According to a study by the Council of Economic Advisors, the tax reform plan will reduce the number of itemizers to just 7.6 percent of all taxpayers – drastically cutting back the time Americans spend complying with the tax code.
Tax Cuts and Pro-Growth Reforms for Businesses of Every Size
The Senate’s Tax Cuts and Jobs Act also proposes significant tax reduction for businesses – starting with a globally competitive 20 percent corporate rate that will allow American businesses to compete against foreign competitors.
This lower rate, in combination with an average state tax rate of 4 percent, will place U.S. businesses on an equal playing field with foreign competitors, which have an average business tax rate of 24 percent. This rate reduction is also long overdue: Since 2000, 32 of the 35 developed countries have reduced their corporate rates, while the U.S. and Chile are the only two countries with higher corporate tax rates.
Small businesses also see strong rate reduction with a 17.4 percent deduction for businesses organized as pass-through entities. Under this plan, a small business owner with $100,000 in income would see tax reduction of almost $3,000 or roughly 25 percent.
While some critics of the plan argue that small businesses deserve a greater tax cut, the same argument can be made for all taxpayers. Small businesses are much better off in the Senate plan than they are under the status quo, which is why the plan is endorsed by the National Federation for Independent Business, the nation’s leading small business trade association.
The tax reform plan also updates the tax code so that U.S. businesses are no longer subject to double taxation of income earned abroad. By implementing a modern, territorial system of taxation, American companies will be able to compete and thrive when doing business overseas.
Today, 95 percent of consumers live outside the U.S. and a total of 41 million jobs are tied to business operations overseas, so this outdated system results in lost jobs and lower wages
These reforms – together with the rate reduction and simplification on the individual side – will result in relief for families and businesses, reversing the trend of stagnant wage growth that has become a feature of the economy. Senators should pass the Tax Cuts and Jobs Act this week.
Grover Norquist (@GroverNorquist) and Alex Hendrie are contributors to the Washington Examiner’s Beltway Confidential blog. Norquist is president of Americans for Tax Reform. Hendrie is Americans for Tax Reform’s director of tax policy.
If you would like to write an op-ed for the Washington Examiner, please read our guidelines on submissions here.
