Our View: Tax overhaul a murky proposition
Rocky Mount Telegram
Sunday, December 24, 2017
The tax overhaul bill signed into law Friday by President Donald Trump has been the subject of massive misinformation and conflicting claims.
The most far-reaching rewrite of the nation’s tax laws since 1986, the $1.5 trillion tax plan permanently lowers the corporate tax rate from 35 percent to 21 percent, imposes a low one-time tax on companies' overseas earnings, provides a windfall to people who pay the personal tax on business earnings, narrows and eventually ends the estate tax and cuts individual tax rates. But those cuts to individual rates are scheduled to expire in 2026.
The corporate tax cut has sparked particular liberal outrage. But the United States taxes corporations at a much higher rate than other Western industrial democracies — the average European corporate tax rate is about 18.4 percent.
Republican lawmakers and administration officials contend that the massive tax cuts will spur economic growth for years to come. But most economists believe the tax plan will push economic growth up by only a few tenths of a percentage point.
While the plan does provide across-the-board tax cuts for all income levels, the wealthiest Americans will by far receive a disproportionate share of the proceeds. Tax cuts always favor the wealthy, because they pay a disproportionate share of the taxes — that’s because they own a disproportionate share of the country’s wealth.
Middle- and lower-income people will receive modest tax cuts, and lawmakers who wrote the tax bill are counting on a future Congress to extend the cuts that are set to expire in 2026.
But whether expanded economic growth and increased investment and hiring by businesses promised by the tax overhaul’s supporters do indeed materialize and benefit average working Americans is a murky proposition at best. There is no evidence from previous tax cuts under the George W. Bush or Ronald Reagan administrations that this will happen.
Businesses increase their investments and hiring when demand for their goods or services grows or appears to be poised to grow. With consumer spending accounting for about 70 percent of all economic activity in the country, the best way to influence investment and hiring is to put more money in the hands of consumers.
This tax plan takes the opposite approach.