Tax reform is the single biggest legislative measure the federal government can undertake to accelerate economic growth in the United States. This reform has been held hostage since January to the repeal and/or replacement of Obamacare, but President Trump may have signaled Wednesday that he intends to move on, despite Congress’s failure to address health care. His speech in Springfield, Missouri was light on specifics. Rather than laying out the details of a proposed reform, Trump put forward the case for why tax reform is necessary.
Trump’s Four Principles of Tax Reform
Noting that the federal tax code has not seen a significant change for more than 39 years, the president called for a plan that is “pro-growth, pro-jobs, pro-worker, and pro-America.” He outlined four basic principles that should guide the reform effort:
- It must be fair and easy to understand.
- It must make us competitive in the international marketplace to create more jobs and higher wages.
- It must reduce the burden on middle-class Americans.
- It must “bring back trillions of dollars in wealth that’s parked overseas.”
This last point referred to the practice by some of the largest American corporations of keeping capital off-shore to avoid the tax penalties of moving those funds back to U.S.
The President Calls Out Congress
The president pointedly took a few minutes to call out Congress for their inertia on several issues – healthcare, in particular. His election campaign promise to abolish the Affordable Healthcare Act foundered in Congress due to Republican disunity and the Democrats’ blanket refusal to cooperate. On tax reform, Trump said, “I don’t want to be disappointed by Congress…” He made a point of targeting Missouri’s senior senator, Democrat Claire McCaskill. “She must do this for [the people of Missouri], and if she doesn’t do it for you, you have to vote her out of office.” He made the statement with some force and emphasis, and it was a line that elicited cheers and applause from the audience.
Trump devoted some time to advocating lower corporate tax levels and proposed a 15% rate. Currently, the United States has the highest corporate tax rate in the world. “We have totally surrendered our competitive edge to other countries,” Trump told the audience in Springfield. According to Trading Economics, that rate has averaged 39.19% since the year 2000. Faced with such a burden, American companies have done everything possible to avoid paying; a point the political left consistently raises during any discussion of the tax code. This rate itself, however, is the very reason large corporations devote significant resources to avoiding paying taxes. It is, therefore, counter-intuitive to maintain this level.
The tax burden upon America’s middle-class was another focus of the president’s speech, although he did not mention specific rates or the number of income tax brackets that currently exist. Legislators, by nature, tend to view tax revenue as their money and, in turn, view tax breaks as the government giving more money to the people. Democrats, in particular, see taxes in this way, although the less conservative Republicans are equally guilty. This outlook is a fallacy, however. In reality, the government has no money of its own beyond that raised through fines and fees – many of which are, themselves, an overreach of government authority. “We believe that ordinary Americans know better than Washington how to spend their own money…” Trump told the audience, promising to push for significant middle-class tax cuts.
With Obamacare – failing as it is – still in place and tying up federal funds, the passage of any tax reform that reduces rates is likely to be a rocky one. The unprecedented devastation of Hurricane Harvey is an additional long-term burden on federal coffers. The coming negotiations over tax code reform will tell the American people much about which of their elected leaders are truly willing to put long-term prosperity ahead of the federal government’s own budget. When discussing tax cuts, the question that everyone should always be asking is “who’s money is it?”