After years of campaigning in support of tax reform, Republicans in both the House and Senate can take a giant step forward this week to keep their promise to pass comprehensive tax reform. With the 2018 midterms less than a year away, this will prove to voters that the GOP is serious about lower taxes, greater take-home pay, and more jobs.
While there are minor differences between the plans in the House and Senate, the broad objectives of tax reform are shared by both chambers. Both bills provide tax cuts for Americans of every income level and drastic simplification of the 70,000+ page tax code. They also provide a much-needed overhaul to the outdated tax code so that businesses large and small will again be able to compete against foreign competitors and create jobs across the country.
The left has tried to portray the GOP tax reform effort as a handout to the wealthy at the expense of everyone else, but this is not true. As confirmed by the Joint Committee on Taxation, both versions of the Tax Cuts and Jobs Act reduce taxes for everyone, with the greatest benefits going to middle income households.
{mosads}The plan doubles the standard deduction to $12,000 ($24,000 for a family), giving more take-home pay to the 105 million American individuals and families that take the deduction over itemizing. This change, in combination with the repeal of many itemized deductions, will ensure the majority of Americans can file on a postcard.
Both proposals also increase the child tax credit to at least $1,600, directly benefiting more than 22 million families. Further, the Alternative Minimum Tax is repealed, giving tax relief to almost 4.5 million American families that paid the tax in 2015, and simplifying the code for millions more who no longer need to calculate their income under the AMT.
These reforms equate to drastic tax reduction. Under the Senate plan for example, a family of four earning $73,000 would see a tax cut of nearly $1,500 — a reduction of 40 percent.
The Tax Cuts and Jobs Act will also help grow the economy after years of insufficient growth. Over the past decade, the economy has struggled at just two percent GDP growth as the country has experienced the worst recovery in the modern era. The Congressional Budget Office projects that under current policies, two percent growth will continue into the next decade. When utilizing the underemployment rate of 8.9 percent, there are 13.5 million people without a job or looking for a full-time job.
Clearly, there is a need for tax reform that grows the economy. The Tax Cuts and Jobs Act proposes a globally competitive 20 percent corporate rate as well as strong tax reductions for small businesses. The plans also call for five years of 100 percent immediate expensing for new investments, encouraging businesses to build and grow.
Not only will these reforms reduce the tax burden on businesses they will also lead to more jobs and higher wages for Americans across the country.
A study released by the Council of Economic Advisors found that in isolation a 20 percent corporate rate could result in household wages increasing by between $4,000 and $9,000 over the long term. More broadly, the nonpartisan Tax Foundation found that both the House and Senate bills would create almost one million new jobs, and increase incomes by three percent.
While the broad outline of the GOP tax reform plan is pro-growth and pro-family, the bills before the House and Senate are not perfect. For instance, the Senate bill fails to repeal the Death Tax, while the House bill repeals it after 2024. However, continued Republican control of the White House and Congress will mean more opportunities to further reform the tax code in the years to come.
Republicans have campaigned on tax reform for middle income families and businesses for years. This week, with a House floor vote and a Senate Finance Committee vote, members of Congress can prove their commitment to tax reform and take a leap forward in ensuring tax reform is soon signed into law.
Alex Hendrie is the director of tax policy at Americans for Tax Reform, a nonprofit group working to support limited government.