Have you heard claims that the Congressional tax reform bill will cause thousands of deaths and usher in a Nazi government? Needless to say, in the debate over fixing our broken tax, hyperbole has too often supplanted rational civil discourse.
It should come as no surprise, then, that many Congressional Republicans in southeastern Pennsylvania are taking considerable flack for supporting the tax reform bill. Before piling on these lawmakers, a hyperbole-free examination of the plan is in order.
Given the complexity of our tax code, reforming it is a complicated endeavor. At its core, however, the current proposal is fairly straightforward. It doubles the standard deduction, meaning individuals and families will pay no taxes on the first $12,000 or $24,000 of earnings, respectively. It lowers tax rates for businesses and individuals, providing immediate relief to all taxpayers. And it expands the child tax credit from $1,000 up to $2,000.
Taken together, the bill’s tax relief and resulting economic growth will translate into an additional $2,700 in take-home pay for the average Pennsylvania family, according to Tax Foundation estimates. That’s real money.
Meanwhile, the move to a simpler, fairer code will mean well over 90 percent of filers will no longer have to itemize their taxes, tremendously easing the tax compliance burden, especially for families and small businesses. Consider this: the current tax code saps $262 billion from the economy each year in compliance costs and deadweight losses, according to research from the National Taxpayers Union Foundation. While this bill won’t fix that problem entirely, it will mark an enormous step in the right direction.
Of course, a simpler tax code means putting the axe to a host of credits, deductions, and loopholes. By zeroing out many of these provisions, Congressional lawmakers have drawn the ire of many special interest groups who benefit from them – that’s to be expected. These special interests are the very reason the tax code has increased in size nearly threefold since the 1980s and hasn’t been overhauled in 31 years.
Moreover, it’s a simple fact that the corporate tax code is an absolute mess. Take it from former President Obama, who repeatedly called for substantial reductions in the corporate rate. As he wisely noted, “Our current corporate tax system is outdated, unfair, and inefficient. It provides tax breaks for moving jobs and profits overseas and hits companies that choose to stay in America with one of the highest tax rates in the world.”
That’s why the tax reform bill also addresses the corporate income tax code by reducing the rate to 21 percent while eliminating many tax provisions and preferences that have created a maze of complexity and poorly structured tax incentives for businesses.
The tax reform proposal would bring the U.S. corporate rate to just below the average for industrialized nations. That will dramatically reduce the incentive for businesses to move their headquarters, operations, and workers overseas.
For Pennsylvania, which also has the second highest corporate tax rate among the 50 states, this reform is critical for encouraging job growth in an increasingly global marketplace.
Already, the international community has taken notice. As reported in the Wall Street Journal recently, “In China, meanwhile, officials are putting in place a contingency plan to combat possible consequences of the U.S. tax overhaul…. Beijing fears the tax changes could make the U.S. a more attractive place to do business and, combined with expected higher U.S. interest rates, sap investment from China.”
When your international competitors are already scrambling to prevent investment and growth from leaving their country and heading to the U.S., it’s a compelling sign that tax reform is on the right track.
Admittedly, no piece of legislation is perfect and this tax bill is no exception. Reasonable criticism is expected and warranted – especially for a proposal of this magnitude. But it’s extremely disappointing to see such a frenzied, misinformed environment that has led to wild claims designed to roil the public and obfuscate what promises to be a transformative reform.
The truth is, the Congressional tax reform proposal represents a major improvement on a decrepit tax structure that will provide Pennsylvania families with relief and allow American businesses to invest and grow family-sustaining jobs in our neighborhoods. Republican members of Congress in Pennsylvania should be applauded for working toward passage of this bill.
Nathan A. Benefield is vice president and COO of the Commonwealth Foundation, Pennsylvania’s free market think tank. Brandon Arnold is executive vice president for the National Taxpayers Union, based in Washington D.C.
