TAXATION

Today’s Increasingly Left-Wing ‘Che Guevara’ Democrats Do Not Understand Economic Growth

Lewis K. Uhler | Peter J. Ferrara

You wouldn’t know it by listening to congressional Democrats, but the Republican tax reform bill helps the middle-class and blue-collar workers first by directly cutting their taxes. Speaker Paul Ryan reports that, under the bill, a family of four earning the median income of $73,000 will get a tax cut of $2,059 which comes in part by doubling the standard deduction to $24,000 for families and the child tax credit to $2,000.

The 15 percent rate, applying before reform to single workers making $9,525 to $38,700, is cut to 12 percent under the new law. The 25 percent rate, applying before reform to singles making $38,700 to $93,700, is cut to 22 percent. The 28 percent rate, applying before reform to singles making at least $93,000, is cut to 24 percent applying to singles making at least $82,500.

And the 10 percent rate applying to the lowest income workers making taxable income of $9,525 or less, is cut to zero percent, after accounting for doubling the standard deduction, doubling the child tax credit, and the still fully refundable Earned Income Tax Credit (refundable means that if the credit adds up to more than you owe in taxes, you still get a check from the IRS for the difference).

But the really big difference for the middle-class and blue-collar workers comes from the cut in the corporate income tax rate from 35 percent to 21 percent, and the other business tax cuts in the bill, which congressional Democrats claim simply line the pockets of Wall Street and corporations. 

Experience and the latest economic studies confirm that the corporate income tax, and other business tax burdens, are actually primarily paid by workers in terms of lost wages and fewer jobs. That is because in today’s global economy, capital is freer than families to move across international borders to where it is treated best.

This is why other countries across the planet have cut their corporate tax rates in recent decades by 20 percentage points and more. As a result, the average corporate tax rate today is 20.1 percent in Asia; 18.9 percent in Europe. America’s corporate tax rate today is double that, at nearly 40 percent, counting state corporate rates on average. American companies are not competitive in today’s global economy with that disabling tax disadvantage.

This is why wages and jobs had become stagnant under President Barack Obama and the Democrats — who occasionally admitted the problem, but refused to do anything about it. That is because today’s increasingly leftwing “Che Guevara” Democrats do not understand economic growth, job creation and rising wages, and no longer represent blue-collar working people and the middle class.

Such was not the case under President John F. Kennedy, who cut income tax rates across the board for everyone, by about 23 percent. Nor was it the case in the 1980s, when Democrats joined with Ronald Reagan and his Republicans to cut tax rates for both capital and labor. Even Clinton Democrats cut taxes in the 1990s. That is why the economy continued to boom for everybody for 25 years, from late 1982 to late 2007.

But while today’s Democrats do not understand it, today’s businesses and capital investors from across the globe do. As The Wall Street Journal reported on December 22, just days after tax reform passed: “As we went to press, at least six large corporations had announced [increased investments, jobs and wages] for their employees, explicitly attributing their action to the tax bill’s business reforms.”

Boeing announced $300 million in increased, job creating investments. “AT&T said it will increase its U.S. investment next year by $1 billion, plus pay $1,000 bonuses to some 200,000 employees.” The Journal added, “Comcast…pledged a $1,000 bonus to about 100,000 employees and vowed to invest ‘well in excess’ of $50 billion over 5 years.”

“Wells Fargo and Fifth Third Bancorp said they would raise their minimum wage to $15 an hour, with Fifth Third also throwing in a $1,000 bonus for 3,000 hourly workers. Nexus Services is giving a 5% pay raise to its employees and hiring 200 more.”

As Speaker Ryan explained in the Journal just a couple of days before, under the tax reform bill investment, jobs and higher wages will flow into America from around the world, as they did under both President Kennedy’s and Reagan’s reforms, not to mention under Presidents Harding and Coolidge in the 1920s.

Given Democrat leaders’ stated commitment to trashing tax reform through to the 1980 elections, it will be up to fiscal conservatives to set the record straight on tax reform’s benefits to American workers and our nation’s prosperity.

Lewis K. Uhler is founder and chairman of the National Tax Limitation Committee and National Tax Limitation Foundation (NTLF). He was a contemporary and collaborator with both Ronald Reagan and Milton Friedman. Peter J. Ferrara is a senior fellow with the Heartland Institute and NTLF. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.

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