Tax legislation currently before Congress would unleash greater economic growth in our country. Workers will benefit through higher wages, and all Americans will find greater opportunities within a larger, more dynamic economy. Independent analyses from the Tax Foundation, the Council of Economic Advisers, my colleagues at the Heritage Foundation, and several other leading economists agree that the Tax Cuts and Jobs Act will significantly boost gross domestic product growth. Their estimates range from about 3 percent to 5 percent over the first 10 years.
The key drivers of this additional growth are rate reductions and full expensing for businesses. Lawmakers must not undo these growth boosters during final negotiations with poorly thought out revenue raisers like alternative minimum taxes on corporations or individuals. A vote on the conferenced Tax Cuts and Jobs Act is expected before the end of December. If lawmakers succeed, they will unleash greater investment in the United States, boosting the economy and American wages.
Multinational corporations increasingly dominate the global economy. Lawmakers must not allow gridlock to hold back American competitiveness by retaining an excessively high corporate tax rate. America’s biggest competitors have lowered their corporate tax rates aggressively over the last several decades. In 1990, Germany had the OECD’s highest corporate tax rate at more than 54 percent. But Germany has since lowered its rate by 24 percentage points. Meanwhile, America’s corporate tax rate remains stubbornly stuck at an uncompetitive 35 percent, the highest corporate tax rate among OECD countries.
House and Senate conferees are considering lowering that rate by 15 percentage points. In combination with state corporate taxes, the average U.S. rate would come in around 25 percent. That’s still higher than the worldwide average of 23 percent, but we would be far more competitive in the international markets than we are today.
One obvious result of the excessively high U.S. corporate tax rate has been a rash of business inversions of American firms moving their corporate headquarters overseas. One prominent example is Burger King, now enthroned in Canada. When businesses find it more affordable to conduct their operations in the United States, American workers benefit.
The Obama administration sought to stop inversions by regulation. This effort was largely unsuccessful. Trying to prevent businesses from pursuing what is in the best interests of shareholders and what drives profitability is futile. Inversions can, however, be successfully curtailed if America provided an attractive tax and regulatory environment.
President Obama also recognized the folly of imposing uncompetitively high corporate tax rates on U.S. businesses. His administration supported lowering the corporate tax rate back in 2013. Making America competitive again should rightfully be a bipartisan priority. Americans can’t always understand how a more competitive business environment will benefit them directly. President Trump has asked Congress to provide tax cuts for Americans so average families will see the benefits in their pocketbooks from tax reform right away.
The current version of the Tax Cuts and Jobs Act would greatly simplify taxes for millions of Americans by nearly doubling the standard deduction. For married couples, it would exclude $24,000 from federal income taxation. Individual tax filers would pocket their first $12,000 tax free. This change would cut the number of Americans who have to itemize their deductions every year in half. Only one out of 10 taxpayers would find it advantageous to continue to itemize deductions once the change takes place.
Virtually all taxpayers earning less than $200,000 will see tax relief from the Tax Cuts and Jobs Act. Analyses suggesting otherwise rely on faulty assumptions of how repealing the ObamaCare individual mandate will affect lower income and middle income families now forced to buy government-approved health plans. You don’t have to be an economist to understand that no longer forcing people to buy something, even if part of the cost is subsidized, is not a tax increase.
As the Tax Cuts and Jobs Act enters the final stage of negotiations between the House and Senate, lawmakers must be careful to preserve the pro-growth policies in their plans. That means holding the line on a 20 percent corporate tax rate and ensuring revenue-driven policies like an alternative minimum tax don’t undo the benefits from pro-growth policies like full expensing of business investment. More jobs, higher wages and better benefits walk hand in hand with economic growth. At this late hour, Congress must not trip them up.
This piece originally appeared in The Hill on 12/11/17