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August 31, 2017

Trump's Tax Reform Accomplishment

 

It may seem too soon to be talking about a tax reform accomplishment. After all, a bill hasn’t even been introduced, and we are all still in a mild state of shock over the failure (for now) of Republicans to even slightly modify Obamacare.

But President Donald Trump has already managed a major tax reform accomplishment the likes of which has evaded politicians, think tankers and talking heads for decades. Trump has managed to connect business tax reform to personal economic opportunity in the minds of his supporters—he has sold workers on business tax cuts.

That was a major accomplishment.

Economists have always understood that high corporate tax rates are bad for workers, because businesses don’t really pay taxes—people pay taxes.

In other words, businesses pass their taxes on to their employees, customers or stockholders. That’s why high tax rates on business are actually counterproductive if the goal is to redistribute wealth or hammer the wealthy.

Thus high corporate taxes mean fewer jobs created, fewer raises, and poor job advancement prospects. And because people invest their IRAs and 401ks in businesses, high business taxes mean poorer returns on those retirement savings.

Ultimately, high business tax rates undermine our global competitiveness, which means productivity (and jobs) move overseas. That’s obviously bad for US workers.

Even so, business tax cuts are always demagogued as “tax cuts for the rich” and “Wall Street over Main Street.” And the public has often embraced the class warfare rhetoric.

Not this time.

In his speech yesterday in Springfield, Missouri, Trump articulated very clearly the linkage between tax reform, economic growth and jobs. It may have been in Trumpspeak rather than Policyspeak, but it was effective.

Ideally—and I say this for our Secretary of the Treasury—we would like to bring our business tax rate down to 15 percent, which would make our tax rate lower than most countries, but still, by no means the lowest, unfortunately, in the world. But it would make us highly competitive.

In other words, foreign companies have more than a 60 percent tax advantage over American companies. They can pay their workers more, sell their products and services at lower cost, and still make more money than their U.S. competitors.

We cannot restore our wealth if we continue to put our businesses at such a tremendous disadvantage. We must reduce the tax rate on American businesses so they keep jobs in America, create jobs in America, and compete for workers right here in America—the America we love. 

Trump’s supporters have entirely bought into his tax reform argument. That means something fundamental has changed in the politics of tax reform, and something special may be possible this time.


 

  • TaxBytes-New

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