Few people understand that Trump’s tax reform plan builds on the House Republican Task Force appointed by House Speaker Paul Ryan earlier this year, and chaired by chief House tax writer Ways and Means Committee Chairman Kevin Brady (R-TX). That means it arises from mainstream Republican tax policy architects.
Also not well understood is that the plan is powerfully pro-growth, leading to the creation of millions of new jobs, and the long overdue return of rising real wages. Trump’s overall economic growth plan would finally produce a real recovery from the 2008/2009 recession, with booming growth. Hillary Clinton’s criticisms of the plan are woefully misinformed and misdirected.
Trump’s proposed tax reform, as with the Ryan-Brady model, would cut taxes for all workers, with just 3 rates for individuals at 12%, 25% and 33%. The middle rate would apply to married couples earning $75,000 to $225,000. The standard deduction would be sharply increased to $30,000 for all married couples, $15,000 for singles.
The biggest difference between the two proposals is that Trump would cut the current U.S. corporate rate of 35%, highest in the world, to 15%, one of the lowest in the world, instead of 25% proposed in Ryan-Brady. That same 15% rate would also apply to the profits of “pass-through” smaller businesses such as sole proprietorships, S Corps, partnerships, etc.
The Tax Foundation scores the Trump plan dynamically as increasing GDP by 8.2%, with 2.2 million new jobs created. Real wages would grow by 6.3% above inflation, resulting from a 23.9% surge in capital investment. They estimate the plan would cut taxes by $3.9 trillion over 10 years, or an average of $390 billion a year.
But Wilbur Ross, private equity fund manager, and Peter Navarro, Economics Professor at the University of California, Irvine, argue that the Tax Foundation’s score is too narrow, failing to consider the effect of Trump’s tax reform in the context of his overall economic growth plan. In the October 25, 2016 Wall Street Journal, Ross and Navarro state that under their own dynamic score, Trump’s plan would “double our economic growth rate, create 25 million new jobs, boost labor and capital incomes, generate trillions of additional tax revenues, and reduce debt as a percent of GDP.”
They argue that besides the much lower tax rates, lower energy costs from Trump’s deregulatory liberation of American energy producers, freeing them to lead the world in production of oil, natural gas, and coal, along with other deregulatory policies, would boost revenues and booming economic growth, producing $2.4 trillion in new, offsetting revenues. Counting Trump’s spending cuts, Ross and Navarro conclude that the plan “achieves full revenue neutrality.”
Hillary Clinton, in sharp contrast, proposes another $1.3 trillion tax hike, increasing taxes on capital gains, corporate dividends, and any savings left after death. Ross and Navarro add, “Her tax hikes on businesses and ‘the rich’ reduce incentives to work and invest. She will increase the already staggering $2 trillion annual regulatory burden on the U.S. economy. She vows to put coal miners out of work and oil and natural gas on the back burner—raising energy prices and reducing America’s competitive advantage.”
Clinton echoes Bernie Sanders socialists in asserting that Trump’s tax rate cuts would return America to recession. But no economic theory posits that reduced tax rates somehow cause recessions. Not Keynesian economics, which holds just the opposite, that tax rate cuts are pro-growth, nor even Marxist economics.
Ross and Navarro say, “What one gets with the Clinton plan is even slower growth than we are experiencing now during the worst economic recovery since World War II.” The Tax Foundation says the Clinton plan “would lead to a 2.6 percent lower level of GDP” and “lower levels of wages and full-time equivalent jobs.” What that means in English is renewed recession. (756 words).
Lew Uhler is Founder and Chairman of the National Tax Limitation Committee and National Tax Limitation Foundation (NTLF), and served Ronald Reagan both when he was Governor of California and President. Peter Ferrara is Principal and General Counsel at the Raddington Group, an international economic consulting firm, and a Senior Fellow at the Heartland Institute and NTLF. He served in the White House Office of Policy Development under President Reagan.