Now that most taxpayers have filed their tax returns for 2017, and grumbled about their taxes and the complicated tax forms, it is worth taking a look at what next year’s tax season will bring. Thanks to tax reform, nearly all (91 percent) individual taxpayers will be paying lower taxes in a new, simpler system.
Although withholding rates have already been adjusted, the full impact of tax reform will be felt next year when taxpayers file their 2018 returns. By then, taxpayers will see the full benefits of tax reform — lower rates for all taxpayers, the standard deduction nearly doubled to $24,000, the child tax credit doubled to $2,000, and important deductions for home mortgage interest and charitable contributions preserved.
Millions of Americans have already seen the benefits of the corporate tax reforms and the small business tax cuts, as hundreds of companies have announced pay raises, bonuses, and increased benefits for their employees. Also, we are just beginning to see the real long-term benefits of tax reform, higher wages and millions of new jobs created by increased economic growth. After being stuck in a slow-growth rut for a decade, our economy is finally beginning to grow again, just as it did after the Kennedy tax cuts and the Reagan tax cuts.
Since the end of 2009, real economic growth has averaged only 1.9 percent a year, the worst economic recovery we have ever had, and the longest period of under 2 percent growth in US history. And the CBO’s latest economic forecast projects another ten years of 1.9 percent economic growth. However, history has shown that pro-growth tax reforms do work to get the economy moving again. The Kennedy tax cuts resulted in economic growth averaging 5.2 percent for five years. From 1965 to 1979, the economy grew at an average rate of 3.7 percent a year. The Reagan tax cuts and reforms produced seven years of economic growth averaging nearly 5 percent a year. From 1983 to 2005, the economy grew at an average rate of 3.5 percent a year.
Opponents of tax reform say projections of 3 percent or more economic growth are “preposterous.” However, economic growth is already picking up, averaging 3.1 percent over the last nine months of 2017 in anticipation of tax reform.
Tax reform opponents want to “undo” the law, scaling back or repealing the tax cuts to reduce future deficits or to fund other government spending programs. But as we have seen so many times in the past, increasing taxes on individuals and businesses will not reduce deficits or help our economy grow. Higher taxes will only lead to increased government spending, more deficits, and slower economic growth.
Given a chance, tax reform will lead to stronger economic growth and higher levels of federal revenues, just like it did under former presidents John F. Kennedy and Ronald Reagan. Opponents of tax reform will be relentless in trying to repeal, cutback, and discredit tax reform. Supporters of tax reform need to keep up the fight to save tax reform, and oppose efforts to undo the law and raise taxes on American taxpayers.
Bruce Thompson is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a consultant in Washington. During the Reagan administration, he was Assistant Secretary of the Treasury for Legislative Affairs.
