Trump channels Kennedy and Reagan
From the pages of In Business magazine.
President Trump has many characteristics — nastiness, bellicosity, and crudeness among them — but he deserves credit for one thing. On economics, he knows what works and what doesn’t. The Donald has unveiled his long-awaited tax reform plan, and like those of iconic Presidents John Kennedy and Ronald Reagan, it promises to boost economic growth.
Whether the supposedly unified Republican-controlled Congress can pass enabling legislation is anyone’s guess, but allowing the people who earn the money to keep a higher percentage of what they earn, while simplifying our ridiculously complex tax code, should provide an economic booster shot. For too long we have been in the miserable position of needing more brainpower to figure out how much income tax we owe than to actually earn the income.
Hopefully, that’s about to change. Under the proposal now being debated in Congress, seven tax brackets would be reduced to three (12%, 25%, and 35%), the standard deduction would nearly double, and the child tax credit would be significantly increased.
For small businesspeople and family owned businesses, the plan limits the maximum tax rate they would pay to 25%. It also would eliminate the estate tax, also known as the death tax. Moreover, it would end the success-punishing scourge known as the alternative minimum tax.
Past rate cuts have stimulated the economy and generated more tax revenue than static forecasts indicated because they put more money in the hands of the people who make the economy go. That would be you and me. It’s our hard work, our productivity, and our risk-taking that creates wealth, and greater wealth produces more tax revenue for all units of government. When combined with spending discipline, it can even balance the budget.
Rate cuts incentivize the very economic activity that triggers taxation so that even with lower rates, more tax revenue is generated because there is more transactional frequency. When the economy grows, more new businesses form and pay taxes, more business income (aka profit) is generated to boost income-tax collections, consumer confidence grows to drive sales tax collections, and more people are employed and pay taxes as a result.
With any luck, Americans will wake up on New Year’s Day with a newer, simpler tax code. The Donald being The Donald, he probably will take all the credit, but he should share it with two predecessors whose tax-cutting policies created prosperity.
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