Taxes are Too High: How Does Reducing Tax Rates Affect You?

President Trump is proposing tax reforms that could include cutting corporate tax rates, reducing individual marginal tax rates, and broadening the tax base. The right mix could generate 3-4 percent growth in gross domestic product, which may not seem a lot, but would be larger than any year in the last 11.

What does that mean to you? The president’s proposal would be the largest tax overhaul since President Reagan and Congress lowered household average marginal income-tax rates by 2 percent in 1987 and then again in 1988.

What would 2 percentage points in individual tax rate reductions mean for the overall economy? About 0.5 percent extra growth per year, says Robert J. Barro, a professor of economics at Harvard University. So 4 percent of individual tax rate cuts could equal 1 percent in economic growth, and that’s not counting corporate tax rates.

America’s economy has not recovered from the Great Recession. Real GDP has been growing at around 2% a year. This weak performance mostly reflects the lack of productivity growth since 2010. If Mr. Trump can raise annual productivity growth from zero to 2%, that alone would be a huge favor to the economy.

It would also take the economy to 4 percent economic growth per year, something the country hasn’t felt in a long time. In a recent analysis, Barro also looks at ways to reduce the federal debt, raise the age of eligibility for Medicare, other entitlement reforms, a border-adjustment tax, construction, and infrastructure spending. All will have an impact on the economy, and whether Americans can create and fill jobs and experience an economic renaissance of sorts.

Tax reform also includes reducing regulations, which are imposed on the conduct of business. So, when individuals have more money and more freedom, they are more likely to risk starting a new business, right? And that’s good for the economy, right?

All in all, at 3-4 percent annual economic growth, Americans may begin to recall what it feels like to be in charge of their own future. And the dignity of feeling in control of one’s future leaves open a lot of possibilities.

New Bill Encourages Private Sector to Help Struggling Communities

Turns out even lawmakers on Capitol Hill think  it’s not the government but the private sector that must make the needed investments to turn around struggling areas of the country. So a group of lawmakers has come up with a tax proposal to do just that.

The Republican-led Congress is getting ready to debate the Investing in Opportunity Act, but get a load of this: it’s a bipartisan bill! Whaa? Unheard of, it would seem, but a real-live attempt at creating some good.

The proposal is the work of Democratic Rep. Ron Kind of Wisconsin and Republican Rep. Pat Tiberi of Ohio in the House of Representatives. Sens. Tim Scott, R-S.C., and Cory Booker, D-N.J., are shepherding the effort through the Senate. The bill is aimed at spurring private-sector investment in “distressed communities,” combating both poverty and the lingering gaps in economic recovery.

Those communities account for 50 million Americans that are below average thresholds on education, unemployment, poverty, median income ratio, and housing availability.

As Roll Call explains:

The legislation would allow investors to defer paying capital gains taxes if they reinvest in “opportunity funds” that would be targeted at “opportunity zones,” or a low-income communities designated by state governments.

“There’s really no direct federal involvement other than we defer capital gains,” Tiberi, a member of the House Ways and Means Committee, told a small group of reporters gathered in Scott’s office Thursday. “There is a cost because of the deferral of capital gains, but ultimately, those will be paid.”

The fact that the bill allows state governments to direct the funds and does not involve additional federal funds being sent to these communities should make it attractive to lawmakers on both sides of the aisle, the bill’s proponents said. …

The lawmakers said encouraging private-sector investment in those communities could have a multiplying effect. The addition of a new grocery store, Tiberi explained, would create more jobs and attract more people to the neighborhood.

This is not the first go-round of the bill. It was introduced in the last Congress, but because it dealt with taxes, it was dead on arrival. Now that President Trump has made tax reform and underserved communities two of his priorities, the GOP is looking at “budget reconciliation,” or bypassing the 60-vote threshold required in the Senate to end debate on legislation and head to a vote. Now it’s just a matter of picking up support for the legislation.