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September 28, 2017

At Last, Pro-Growth Tax Reform

 

Since its founding in 1987, IPI has focused on promoting pro-growth tax reform—not simply tax changes that would “put more money in peoples’ pockets,” but changes that actually stimulate GDP growth through increased investment. Not arguing over who gets how much of the pie, but actually growing the pie, so everyone benefits no matter where they are on the distribution chart.

Not every tax cut stimulates economic growth. But some do, and reform must focus on those elements that can actually cause growth.

The really great news about President Trump’s and congressional Republicans’ “Unified Tax Reform Framework” is that it contains a number of pro-growth elements that IPI has championed for many years. Not everything in the plan contributes to economic growth, and of course it’s only a framework at this point, not a detailed proposal. But on the whole it incorporates many pro-growth ideas tax reformers have advocated over the last 30 years.

As far back as 2001, IPI published “What’s the Best Way to Stimulate Economic Growth?”, an analysis of seven pro-growth tax reform strategies. Notably, the president’s tax reform framework includes three of those seven changes: Cutting the corporate tax rate, expensing of business capital investments, and repeal of the alternative minimum tax (AMT). If tax reform is applied retroactively, as Rep. Kevin Brady intends, the reform would include four of the seven recommendations.

That IPI paper only anticipated reducing the corporate tax rate from 35 percent to 34 percent! The current framework lowers the rate all the way down to 20 percent, which is beyond the wildest dreams of pre-Trump administration tax reformers.

The reform also includes moving from our current global tax system to a territorial regime, including repatriation of the profits of U.S. corporations “stranded” abroad because of the unfavorable tax treatment in the current U.S. tax code. IPI has long been in favor of territorial taxation and repatriation. After all, if more cash is what the economy needs, encouraging U.S. corporations to bring trillions of dollars in profits back home is a much better approach than the Federal Reserve Bank’s quantitative easing.

We’re not sure everyone is going to like “deemed repatriation”—the reform deems offshore profits as repatriated and taxes them, whether a company actually repatriates them or not. But that will depend on the details, which in this case is the repatriation tax rate and the transition rules.

The Unified Framework also eliminates the estate tax, which IPI calculated costs more to collect than it actually generates in revenue.

But the question remains: Can Republicans get anything done? Since everyone benefits from economic growth, everyone should hope so.


 

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