Congressional Republicans unveiled the most significant reforms of the nation’s tax code in more than three decades on Friday evening, putting them on a path to fulfill their goal of passing reform prior to Christmas.
Nearly everyone will find a gift for themselves under this impressive Christmas tree.
Families will enjoy across-the-board rate reductions, allowing them to keep more of their hard-earned money in their pockets. The standard deduction will be doubled to $24,000 for families, meaning that the tax code will now be dramatically simpler and the number of individuals paying income taxes at all will be increased. And due to a late change pushed by Sens. Mike Lee (R-Utah) and Marco Rubio (R-Fla.) the plan will not only double the Child Tax Credit from $1,000 to $2,000 for each child, it will expand the “refundability” of the credit to $1,400, allowing families with no taxable income to still reap the benefits of the credit.
“For far too long, Washington has ignored and left behind the American working class. Increasing the refundability of the Child Tax Credit from 55% to 70% is a solid step toward broader reforms which are both Pro-Growth and Pro-Worker,” Rubio tweeted on Friday, indicating his support for the Conference Report.
Job creators of all sizes will also see dramatic improvements to their tax status, allowing them to keep more money for investing in infrastructure, and most importantly, their workers. Businesses will enjoy a reduction in the corporate tax rate from 35 percent—the highest in the industrialized world—to 21 percent. Main Street job creators, who file under the individual tax code, will also see benefits from a first-ever 20 percent tax deduction that applies to the first $315,000 of joint income, which dramatically reduces their tax rate. And it allows businesses to immediately write off the full cost of new equipment, which will unleash a wave of investments that will grow productivity and paychecks.
Although many will shrug at the thought of reducing corporate tax rates, it’s worthwhile to remember who actually pays these taxes. As Ryan Bourne wrote for National Review, “[I]t’s cost is ultimately borne by some combination of shareholders (through lower dividends or less valuable shares), workers (through lower wages), and consumers (through higher prices).” The Congressional Budget Office has estimated that the proportion of the corporate income tax burden that falls on labor could be more than 70 percent, meaning that for every dollar in corporate tax cuts, workers could see 70 cents worth of benefit (higher wages, better retirement, better healthcare, etc.)
Democrats will no doubt throw up their last gasp attempts to demonize this bill and the congresspeople who vote for it. But doing so only reinforces the notion of what their party has become: Accepting of the “secular stagnation” that defines our status quo and focused on redistributing the meager gains of our current economy. Republicans hope for something better. This tax reform bill represents a vote of confidence that work can still be done to restore America’s economic dynamism.
As the Wall Street Journal editorial board writes:
For eight years the Democrats put income equality over growth and ended up with less of both. Now Republicans are poised to enact a tax bill that on the whole makes broad prosperity the priority. Next week the House and Senate will call the roll and we’ll see which politicians in Washington still think America is one of the world’s great underdeveloped countries.
After the announcements last week by Senators Rubio, Tim Scott (R-SC) and Bob Corker (R-Tenn)—the only Republican senator to vote against the previous bill—there appears to be little doubt that Republicans have a clear path to passing this pro-growth bill. In many ways that all but ensures that Democrats will stand united in opposition. Their quest to present a stark contrast to Republicans has unfortunately proven to be a much stronger lure than the opportunity for economic growth.