On Wednesday, 11th October, the Republican Party released an ambitious tax reform framework, with three goals, nine changes, and thirty-one reasons why we need tax-reform. They said they follow in 40th President Ronald Reagan’s footsteps for his 1986 tax reform, which they named the “single largest reform of the U.S. tax code in our nation’s history.” They also say that now, after more than 30 years, it’s once again time for a new such tax reform.
It’s three goals are: (1) more jobs, (2) fairer taxes, and (3) bigger paychecks. This seems to go for a laissez-faire economic system, free from government regulation and intervention. But how will they implement them? Primarily, the plan seeks to repeal the estate tax, also called “death tax”, and the Alternative Minimum Tax (AMT), which requires taxpayers to do their taxes twice. It shrinks the current seven tax brackets to three – 12%, 25% and 35% – with a potential additional top rate for the highest-income tax payers, so the wealthy don’t pay a lower share than they do today. It also limits the maximum tax for small and family-owned businesses to 25%, reduces the corporate tax to 20% – lower than the 22,5% average in the industrialized world – and allows businesses to write off (or “expense”) the cost of new investments for at least five years.
It seeks to eliminate loopholes for the wealthy, by eliminating itemized deductions and imposing a one-time, low tax rate on wealth that has already been accumulated overseas so there is no tax incentive to keeping foreign profits overseas and jobs offshore.
Among the incentives the plan proposes, it retains tax incentives for home mortgage interest, charitable contributions, work, higher education and retirement security. It also doubles standard deduction, and increases the child tax credit.
It’s certainly an ambitious plan, and the Libertarians in Congress could see this as a victory if the plan gets through. Trump told Congress to “show [him] the BIG tax reform”, and here it is, in simple wording, so that’s certainly something for them to be proud about, for now, though they have a lot to work on with strengthening the Iran deal – as Trump recently decertified it – and fixing healthcare.
Ron Paul, however, stated in a Mises Institute article on Tuesday called Will Tax Reform Increase or Limit Liberty, that tax reform won’t increase liberty without cutting spending as well. He suggested that Congress “should cut two dollars in spending on the military-industrial complex and other forms of corporate welfare for every dollar in tax cuts,” adding that “Cutting both taxes and spending is the only way to protect prosperity and liberty.” In his budget plan ‘Taxpayers First’ released earlier this year, Trump suggested a way to balance the budget by 2027, being the first President to suggest cutting $3,6 trillion from spending over 10 years. To what degree these plans will get through in the following years of his term will determine how much it will “increase or limit liberty”, but as Republicans have stated tax reform is their No. 1 priority, they won’t go down without a fight.
Though they have sent that clear message however, they do have a lot of other important issues to get through with which is yet to be completed. Reagan wasn’t just known for his domestic fiscal policy, but also for his strong foreign policy against the Soviet Empire. So, here’s an advice to Congress: Go big like Reagan!