Today, the U.S. House of Representatives voted to adopt the recently passed Senate budget resolution, clearing a major hurdle for proposed federal tax cuts to occur this year.
The budget framework is expected to generate room for $1.5 trillion worth of tax cuts for ordinary Americans, small businesses, and corporations, the biggest and broadest cuts since President Reagan’s over 30 years ago.
But what do these tax cuts actually mean for regular Americans? Despite media accounts to the contrary, the biggest tax cut beneficiaries would be hardworking Americans on fixed incomes who have largely been passed over by the stock market-driven economic recovery.
The tax framework would immediately help the working-class because it would double the zero-tax rate bracket to $24,000. Tens of millions more income tax filers would be subject to zero tax because of this reform. It would also greatly reduce the total tax bite for families earning somewhat above this income threshold.
This expanded zero tax bracket along with other promised reforms directed at hardworking taxpayers, including increasing the child tax credit, would allow these employees to bring home a little more of their own money each pay period to cover perpetually rising healthcare and childcare expenses, among other costs.
The tax cuts would make it easier for families to save for a home down payment, one of the most time-tested ways for average people to build wealth and financial independence – not to mention family, civic, and social stability. The average homeowner’s net worth is roughly 45 times that of the average renter.
The tax reform gains to working- and middle-class families do not end there. The proposed tax framework calls for a dramatic tax cut for Main Street small businesses, which currently face numerous economic challenges from the rise of e-commerce to increased global competition. Currently small businesses pay a 40 percent federal marginal tax rate, far higher than their international and big business competitors. Reform would lower this rate to 25 percent.
Economists from across the political spectrum agree there’s a negative relationship between business taxes and employee compensation. In other words, over-taxation is paid for out of lower employee wages. With a reduced small business tax rate, entrepreneurs would have more earnings to raise pay, hire new employees, and expand.
I can speak from experience. As a small business owner, I would direct my tax cut savings to employee compensation and new development opportunities that will further create jobs in the community. A recent national poll of small business owners conducted by the Job Creators Network suggests my experience is shared by most small business owners.
In this sense, tax cuts could give workers two raises: first, by allowing them to keep more of their paychecks, and second, by making it easier for their employers to give them a raise.
More money in communities to be spent bettering the lives of consumers and small businesses – rather than being sent off to Washington to be spent on often vague federal priorities – would help the country get back to its three percent historic growth rate. The trillions of dollars in additional tax revenue from such growth would help offset the fiscal cost of the cuts, as they did during the Reagan, Kennedy, and Coolidge Administrations, among others.
And as American history demonstrates, the biggest beneficiaries of high economic growth are ordinary workers, whose living standards rise due to increased consumption (which further fuels the economy), additional leisure time, and the ability to find more rewarding careers.
Everyone should be excited about potential federal tax cuts. But especially the hardworking taxpayers who have the most to benefit.
Walter A. (Buz) Koelbel Jr. is the president of Koelbel and Company in Denver.
Views expressed in op-eds are not the views of The Daily Caller.