The political importance of passing tax cuts

James Freeman:

Congressional campaigns two years after a new president is elected tend to be tough on the party holding the White House. This history, when combined with Donald Trump’s unpopularity, should provide motivation enough for Republicans in the House and Senate to push tax reform over the goal line. But the legislative details also matter, because Americans have a particular problem and the GOP needs to solve it.

In 1982, during President Ronald Reagan’s second year in office, Republicans lost 26 seats in the House. In 1994, Bill Clinton watched his Democratic colleagues lose 52 House seats. In 2010, during year two of Barack Obama’s tenure, the Democrats lost 63 seats.

Among recent presidents the only one who didn’t watch his party lose seats in the first off-year election after he moved into the White House was George W. Bush. Republicans actually added to their House majority by picking up eight seats in 2002, but perhaps this one should come with an asterisk. A little more than a year after the 9/11 attacks, congressional candidates faced an electorate that had rallied behind the wartime President.

To maintain their current House majority Republicans can afford to lose no more than 23 seats in next year’s contests, including the March special election to fill the seat of former Rep. Tim Murphy (R., Pa.).

The history is daunting and the current occupant of the White House presents unique challenges. A conservative political operative who conducted extensive private polling in Virginia right after this month’s gubernatorial election sought to understand the stunningly large Democratic turnout. The source says that sending a message to President Trump was the top reason cited by Democratic voters who normally don’t vote as the reason they showed up this year. This research found that just two days after the election roughly a third of these occasional Democratic voters could not even name their winning candidate, Governor-elect Ralph Northam.

Mr. Trump is not popular in Virginia, nor in many other parts of the country. But voters tend to give him higher marks on the economy. Voters who are consumers and investors have clearly been expressing optimism about his program and business executives are enthusiastic enough that they have been building more new factories and buying more new equipment.

But surveys still show a high level of anxiety about our economic future and worries about the lack of opportunity for younger generations of our citizens. If Republicans can reduce this anxiety, they have a chance to buck history. And they can only solve it by allowing more growth in the private economy, not by creating new government benefits routed through the tax code.

The United States just spent a decade testing the proposition that the government can solve our economic challenges by expanding the social safety net. But record enrollments in government health, disability and food-stamp programs did not make us happy. It’s time to give liberty and opportunity a try.

A state response comes from Devin Gatton:

Main street businesses are the true victims of the strains of the current tax code. At the moment, nearly 95 percent of small businesses are taxed as “pass-through entities,” which means a business’s income is taxed at the owners’ top marginal individual rate. On the federal level, that rate reaches almost 40 percent, and once state and local taxes are added in, small businesses can be forced to relinquish almost half of their income to the government – far above the international norm.

Proposed tax legislation would fix this uncompetitive status quo. The tax proposals from both the House and the Senate contain promising provisions for our nation’s leading job creators, and are a step towards creating an equal playing field for small businesses across the county.

In the version the House of Representatives just passed, a separate small business tax structure is created. For starters, a new top marginal rate is established at 25 percent, which is nearly 15 percentage points lower than the old rate. Earnings below this rate are taxed at an expanded 12 percent bracket. (The 15 and 28 percent brackets are eliminated completely.) Perhaps most excitingly, the bill also creates a new nine percent rate on the first $75,000 of taxable income for businesses that make less than $150,000.

The current version of the bill the in the Senate does not create a separate small business rate. Instead, it creates a 20 percent deduction for all small businesses earning less than $500,000 a year, and for non-professional services businesses above that threshold. According to the Tax Foundation, 97 percent of small business pass-throughs earn $500,000 or less, meaning nearly every small business in the country will earn this substantial and long-overdue relief.

Small businesses have waited over 30 years for Congress to fix the current tax code. But the plan would help far more than just them.

In a score by the nonpartisan Tax Foundation, they estimate the Senate bill will create 925,000 jobs and increase average after-tax income by over $2,500 for middle-income families. The same study finds Wisconsin would see the creation of almost 19,000 jobs and an income increase of over $2,600, which is higher than the national average.

Most small business owners would use a tax cut to expand their business, create jobs, and increase employee wages, helping local economies and their residents across the state and country.

Small businesses are currently facing one of the most stressful times of the year: Holiday shopping. The excitement of the Christmas season is coupled with the anxiety of finishing the year strong, jumpstarting growth for 2018.

Passing the Tax Cuts and Jobs Act would be an incredible early Christmas present for Wisconsin’s main street businesses. Congress should make good on their promise and pass it now.

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