Countdown for a Boom: <br>Congress Has Ten Weeks <br>To Pass Trump Tax Cuts
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
Financial markets and most pundits are missing the new writing on the wall. For a variety of reasons surrounding shrewd moves by President Trump, the chances for significant tax cuts in the next ten weeks have risen sharply.
Since the Charlottesville blow-up in mid August, when the president’s fortunes were at low ebb — and I’ll repeat my view that there’s not a white-supremacist, racist, hateful bone in Mr. Trump’s body — we’ve witnessed a dramatic executive turnaround. The President handled the hurricane emergencies beautifully.
His bipartisan political pivot to “Chuck and Nancy” to keep the government open and raise the debt ceiling was clever indeed. As economist Steve Moore puts it, POTUS publicly spanked GOP leaders Paul Ryan and Mitch McConnell. Though there’s plenty of confusion about immigration reform, it’s clear now that 800,000 dreamers won’t be deported for at least two years if ever.
Some polls show POTUS’s approval nearing 50%. The public likes what it sees. And most important, Mr. Trump has cleared the decks for tax cuts and reform.
Make no mistake: Mr. Trump is absolutely committed to tax cuts. This is completely unlike the health-care muddle. Critical here is the argument Mr. Trump is making: A big drop in large- and small-business tax rates will mostly benefit middle-class wage earners.
Research from Kevin Hassett, formerly of AEI and now chairman of the Council of Economic Advisers shows about 70% of the benefits of business tax cuts going to wage earners. This is not a tax cut for the rich, as Johnny-one-note Democrats insist.
Two big numbers stand atop Trump’s tax plan: 3% and 15%. Three percent is the new growth path that will normalize America’s economy and generate at least $3 trillion of additional revenues over ten years (or sooner). This is the mother of all pay-fors. Fifteen percent is the corporate rate that will spur capital-formation, business-investment, productivity, and real-wage increases.
The Republican establishment says it can’t be done. They’ll only risk dropping the business rate to 25% from 35%. But President Trump wants the full 15%. So does his Treasury secretary, Steven Mnuchin. Other than the president, Mr. Mnuchin, whom I call the “apostle of growth,” is the only administration official to keep up the drum beat for 3% and 15%.
Aparna Mathur of AEI notes that at 39.1%, including state taxes, the United States has the highest statutory rate among G20 nations. (Communist China is 15%.) Our average corporate rate, which is total taxes paid as a share of income, is 29%, third highest in the G20.
So echoing the President, if we want to build out investment, jobs, and wages, bring back overseas profits, stop American companies from going overseas, and make the investment climate in America tops in the world, we need a big-bang slash of our business tax rate.
It’s not a matter of bean counting. It’s a matter of growth-oriented economic policy. Mr. Trump is ending Mr. Obama’s wars on business and success. He’s halting the war on fossil fuels. He’s rolling back the regulatory state. OMB reports that roughly 800 pending business regulations have either been frozen, rolled back, or reclassified in the administration’s first seven months.
Slashing the business tax rate is the necessary complement to this regulatory relief.
And GOP lawmakers have ten weeks to do it.
Can they? Will they?
Here’s some progress: It looks like Paul Ryan is taking off his CBO green eyeshades. Rather than insist on “revenue neutral” tax policy, he seems to be returning to his Jack Kemp, supply-side roots, arguing that growth is the most important issue.
The CBO is a big part of the swamp that President Trump would drain. With its pathetically small growth estimates, it blocks pro-growth tax-cut policies. Neither CBO nor the Joint Tax Committee has any serious models showing how lower tax rates reduce tax-avoidance and tax sheltering — a point made emphatically by supply-side mentor Arthur Laffer.
But Mr. Mnuchin’s Treasury will come up with more realistic models for the Trump tax cut. No reason why these estimates can’t be used. Nor is there reason why the ten-year scorecard window can’t be extended to 20 years. The green-eyeshade process must not be permitted to block an American prosperity renaissance.
The GOP needs a budget resolution, which will contain crucial, 51-vote reconciliation instructions on spending and taxes. Where there’s strong political will, legislative ways and means will be found. Ten weeks is plenty of time.
So I agree with my friends at Bretton Woods Research: Budget and tax-cut draft legislation is coming sooner than folks think. My financial take? Buy stocks, go long the dollar, and short gold.
In other words, optimism.