There are some economists and wealthy Americans who oppose tax reform. Their voices became louder after the Senate approved its bill, but their opinions shouldn’t keep Congress from getting this done.
Neither the House or Senate bill is perfect, but both would help small businesses and the middle class. Both would make our tax system more globally competitive and bring billions of dollars stashed overseas back home for productive use.
Lawmakers shouldn’t hold up growth-producing legislation because of ideology or class warfare.
{mosads}Millionaire Eric Schoenberg opposes tax reform because he owns pass-through companies and would get a tax cut. Schoenberg says he doesn’t need more money.
Maybe he doesn’t, but most pass-through owners would use a cut to hire new employees or raise wages and benefits. These entities make up more than 90 percent of U.S. businesses and employ more than half of the private-sector workforce.
Right now, their marginal tax rates are very high, sometimes even higher than corporations’. Many pass-through owners look wealthy on paper, but they plow every dollar of profits back into their businesses. Letting them keep more of their hard-earned money will allow them to expand.
If anything, conference committee negotiators must do more for these companies. As Fastsigns CEO Catherine Monson has explained, many pass-throughs, including franchisees, would not get a tax cut under the rules included in the House and Senate bills. Lawmakers should ensure pass-through companies benefit as much as corporations.
If millionaires like Schoenberg still want to pay more after reform passes, they should write a check to the U.S. Treasury. Warren Buffett and Bill Gates’ Giving Pledge, under which billionaires promised to give away more than half their wealth to charitable organizations, could ask the wealthy to help reduce the national debt or save Social Security, Medicare and Medicaid.
Schoenberg and I were fortunate enough to be raised in this country, which encourages entrepreneurship and where most lawmakers recognize there’s a tipping point where government policy stifles innovation. Here, my grandfather could start a business that would become one of the nation’s leading general contractors.
In Jamaica, Peru, or Morocco, the Hitts — or the Buffetts or the Schoenbergs — wouldn’t have been as fortunate. The wealthy owe it to our country to give back (and I do), but we shouldn’t try to stop a tax reform bill that will benefit small businesses and the middle class in order to do so.
Economists like Columbia University’s Jeffrey Sachs also argue tax reform will benefit the wealthy too much. Sachs also has said reform will “bankrupt” the country because it won’t produce much growth. Academics disagree on this point, however.
For example, in a recent letter to Treasury Secretary Steve Mnuchin, several economists said tax reform would boost growth from 3 to 5 percent.
President Ronald Reagan joked that an economist’s version of Trivial Pursuit would include 100 questions — and 3,000 answers. Harry Truman begged for a one-handed economist because his kept saying, “on the one hand,” then referring to their other.
Congress cannot rely solely on academics, who talk about job creation but don’t actually create jobs themselves, to determine what’s right for the U.S. economy. Besides, history shows tax cuts won’t bankrupt the country.
According to Strategas Research, number crunchers at the Congressional Budget Office underestimated capital gains tax revenues by $162 billion after that rate was cut in 2003. The bipartisan 1981 tax cut also resulted in higher revenues.
Debt did increase under Reagan, but tax cuts weren’t responsible. According to the Federal Reserve of St. Louis, federal spending hovered around 20 percent of GDP during the 1980s, a departure from the 17.6 percent average of the 1950s, 1960s, and 1970s.
When we were on our way to paying down the debt in 1999 at the end of the Clinton administration, spending was 17.5 percent of GDP.
Like it was in the Reagan years, spending is responsible for our debt problem. Debt as a percentage of our economy has skyrocketed in the eight years since 2009. There were no major tax cuts in that time and growth stagnated.
That’s true on the one hand, and it’s true on the other.
Todd Hitt is the founder of Kiddar Capital, a private equity firm. Hitt’s assets span real estate, construction, energy, finance, and hospitality. Follow him on Twitter @ToddHitt. He appears as a guest on Fox Business Network.