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Toward real tax reform – While bipartisanship can be acceptable, a ‘zero sum’ mentality is not

– – Thursday, September 14, 2017

The evening news and front pages are dominated by natural disasters. But our federal tax code is an unnatural disaster strangling America with long-term stagnation. To restore booming growth, America needs tax reform as proposed by President Trump and Republican Congressional leaders, who are virtually “singing off the same sheet.”

But Mr. Trump’s recent “deal” with Sen. Chuck Schumer and Rep. Nancy Pelosi on the debt limit raised questions on tax reform’s future. While “bipartisanship” is often acceptable, if not positive, the Schumer/Pelosi tax reform driven by Bernie Sanders/Elizabeth Warren philosophy is not. They remain gripped by a “zero sum mentality” — for one person to gain in tax reform another must lose.

To advance their “zero sum” view of the world, liberals and their Washington “bean counters” demand “revenue neutrality”: for every tax revenue dollar cut there must be a new revenue dollar added. They can’t accept the reality that President Kennedy’s and President Reagan’s tax reforms made everyone better off, dramatically growing our nation’s economy.

Fortunately, some common-sense Democrats offer true bipartisan solutions. In her recent Wall Street Journal article, “Why Corporate Tax Reform is a Bipartisan Cause,” Laura Tyson, President Clinton’s chairman of the Council of Economic Advisers, urged sharp reductions in U.S. corporate tax rates, noting that between 2000 and 2016 the number of Fortune 500 companies headquartered in the U.S. declined by 25 percent, as capital and jobs fled.

Earlier in 1996, after House Speaker Newt Gingrich and congressional Republicans finally “forced” Mr. Clinton to sign the “Reagan Welfare Reform” legislation, Ms. Tyson and other bipartisan Democrats combined with Newt to lasso runaway spending and produce four back-to-back years of budget surpluses. That’s what today’s low-growth fiscal dilemma requires: major growth-inducing tax reform followed by serious spending control.

Wealth creation and economic growth are precisely the formula for wage (and job) increases for everyone in our nation, not just for the top 1 percent who did well under President Obama (worldwide studies confirm that 70 — 90 percent of every corporate tax dollar is borne by workers — not shareholders or customers — in the form of reduced wages and fewer jobs).

When President Kennedy entered office in 1961, the top income tax rate was 91 percent. Mr. Kennedy proposed to cut all income tax rates across the board by about 23 percent, reducing that top rate to 70 percent. In promoting his tax cut, Mr. Kennedy said:

“It is a paradoxical truth that tax rates are too high today, and tax revenues are too low, and the soundest way to raise revenues in the long run is to cut tax rates [A]n economy constrained by high tax rates will never produce enough revenue to balance the budget, just as it will never create enough jobs or enough profits.”

He added, “Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other It is between two kinds of deficits — a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy — or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, produce revenues, and achieve a future budget surplus.”

The year after Mr. Kennedy’s tax cuts were adopted, U.S. News and World Report exclaimed, “The unusual budget spectacle of sharply rising revenues following the biggest tax cut in history is beginning to astonish even those who pushed hardest for tax cuts in the first place.” Arthur Okun, Mr. Kennedy’s chief economic adviser, estimated that the tax cuts expanded the economy in just two years by 10 percent above where it would have been.

Similarly, President Reagan cut income tax rates for everyone by 25 percent in 1981. No one pretended the cuts would be revenue neutral. Those tax rate cuts, among other pro-growth Reagan reforms, caused booming economic growth. During the first seven years of that boom, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third largest in the world at the time, to the U.S. economy.

In 1984 alone, real economic growth boomed by 6.8 percent, the highest in 50 years. Nearly 20 million new jobs were created during Mr. Reagan’s recovery, increasing U.S. civilian employment by almost 20 percent. Because of that booming growth, federal revenues doubled while Mr. Reagan was president, despite the dramatic cut in income tax rates.

The proposed tax reforms of Mr. Trump and the Republican congressional leadership would create similar booming growth. Conservatives should support tax reform without calling for revenue neutrality, just as they supported Mr. Reagan’s tax rate cuts. Economic growth would make the cuts more than revenue neutral. After just a few years, they would be revenue positive, as they were under Mr. Reagan and Mr. Kennedy.

• Lewis Uhler is founder and president of the National Tax Limitation Committee and the National Tax Limitation Foundation. Peter Ferrara is a senior fellow at the Heartland Institute, a senior policy adviser with the National Tax Limitation Committee, and principal and general counsel with the Raddington Group.

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