Excerpts from The Wall Street Journal
By: The Wall Street Journal Editorial Board
Wednesday, April 26, 2017
“The White House rolled out its tax principles on Tuesday, investing new energy in the first serious reform debate in 30 years. While the details are sparse and will have to be filled in by Congress, President Trump’s outline resembles the supply-side principles he campaigned on and is an ambitious and necessary economic course correction that would help restore broad-based U.S. prosperity.
“Many voters heard Mr. Trump’s make-America-great-again slogan as a promise to raise their incomes and improve economic opportunities after a long stagnation. Eight years of 2% growth since the recession ended in 2009 is the weakest recovery in the postwar era, and the result has been rising anxiety and diminished expectations for millions of Americans.
“Faster growth of 3% a year or more is possible, but it will take better policies, and tax reform is an indispensable lever. Mr. Trump’s modernization would be a huge improvement on the current tax code that would give the economy a big lift, especially on the corporate side. The reform would sharply cut the business income rate to 15% from 35%, while simplifying the code for individuals and cutting some marginal rates.
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“The plan also fits the economic moment, because a main source of U.S. malaise is poor business investment … Productivity growth in the 2000s and 2010s is only about half the average of the 1980s and 1990s.
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“Another benefit is that the Trump plan would move to a territorial tax system, where U.S. companies pay taxes on income only in countries where it is earned …
“On the personal side, the Trump plan would make the code more efficient by collapsing the current seven brackets down to three of 10%, 25% and 35% …
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“… The 1986 Reagan reform—the last major reform—cut the top rate to 28% from 50%, which sustained the 1980s boom. Growth averaged 4.8% in the six years after the 1981-82 recession and the growth effects continued to pay dividends into the 1990s. These have since dissipated as the tax code has been riddled with more and more rent-seeking dispensations.
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“... The Trump economic team acknowledges that their plan would mean less federal revenue than current law under conventional Beltway score-keeping that assumes no increase in economic growth. But unlike in Washington, in the real world people and companies will change their behavior in response to better incentives, the economy will grow faster, and over time revenues will grow faster than without reform.
“… Treasury Secretary Steven Mnuchin and National Economic Council chief Gary Cohn have delivered a supply-side outline that will unleash the pent-up productive capacity of U.S. workers and businesses. Credit is also due House Speaker Paul Ryan and Ways and Means Chairman Kevin Brady, whose “Better Way” platform made tax reform a priority.
“Mr. Trump’s plan is an opening bid to frame negotiations in Congress, and there are plenty of bargaining chips … But better to start with a big pro-growth offer rather than preemptively lower aspirations. Republicans won’t get another opportunity like this to reshape the tax code for a generation.
“The Trump principles show the President has made growth his highest priority, and they are a rebuke to the Washington consensus that 1% or 2% growth is the best America can do ... If anything close to his this reform can survive the political maelstrom, it will go a long way toward returning to the abundance of the 1980s and 1990s.”
Read the full editorial here.
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