For the past few months, we have been bombarded with news stories critical of the Republican tax reform plan. The mainstream media has written story after story claiming that the tax reform plan would only benefit the wealthy and big corporations, and would have little or no impact on economic growth.
Washington Post reporters Jeff Stein and Mike DeBonis wrote that the “bulk of the legislation’s benefits would go to the wealthy and to corporations.” The New York Times editorial board said the bill would lead to “looting of the public purse by corporations and the wealthy.” Paul Krugman said the Trump administration’s forecast of 2.9 percent economic growth was a “sick joke.”
The media and the so-called independent analysts they quote said the same things about the Reagan tax cuts and reforms in the 1980s. They were wrong then, and they are wrong now.
First, the overwhelming majority of the bill’s tax cuts will go to individuals, not corporations, and the middle class will receive substantial tax cuts. According to a report released by the Joint Committee on Taxation on Dec. 18, $1.1 trillion of the $1.45 trillion tax cut goes to individuals, 77 percent of the total tax cut. The net corporate tax cut is only $329 billion, or 23 percent of the tax cut. The bill’s corporate rate cut does cut corporate taxes by $1.35 trillion, but these cuts are offset by $695 billion of corporate loophole closers and $324 billion of higher revenues from international tax changes. The claim that the bill disproportionately benefits corporations is wrong.
For individuals, the tax cuts benefit taxpayers in every income group, not just the wealthy. The three largest tax cuts come from the across-the-board tax rate reductions for all taxpayers ($1.2 trillion), the increased standard deduction ($720 billion), and the expanded child tax credit ($573 billion), all of which will provide substantial tax relief to middle-class taxpayers. According to the House Ways and Means Committee, the typical family of four earning the median income of $73,000 will receive a tax cut of more than $2,000 a year. The claim that the bill only benefits the wealthy is wrong.
Second, history shows that tax rate reductions and reform can and will increase economic growth, and that annual economic growth above 3 percent a year is very possible. The Reagan tax cuts and reforms unleashed seven years of economic growth averaging 4.4 percent a year. From 1983 to 2005, our economy grew an average of 3.5 percent a year. In 15 of those 23 years, economic growth was 3.5 percent or higher. The Kennedy tax cuts of 1964 resulted in five years of economic growth averaging 5.5 percent a year. From 1965 to 1979, the economy grew at an average rate of 3.7 percent a year. A return to economic growth rates above 3 percent a year is a real possibility.
Over the last 10 years, the economy has averaged only 2 percent growth a year, the slowest 10-year growth rate in our nation’s history. CBO forecasts another 10 years of stagnant 2 percent growth under current policy. The Republican tax reform plan provides substantial tax relief to millions of taxpayers, and will benefit all Americans by getting us out of our slow-growth rut and increasing economic growth in the years ahead.
Bruce Thompson is a Washington consultant. He worked on the Tax Reform Act of 1986 as the Assistant Secretary of Treasury for Legislative Affairs during the Reagan Administration.
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