Like A Movie Zombie, Tax Reform Refuses To Die – Investor’s Business Daily

Taxes: The tax-reform zombie walks again. Or so it appears. Just when you thought it was killed off by President Trump's verbal gaffes, the never-ending Russia investigation, the failure of ObamaCare repeal, antifa and neo-Nazis, and by the GOP's own ineptitude, as they say in the horror-movie biz: It's ALIVE!

And, yes, that's a good thing. Americans had been left to believe that both tax cuts and deeper tax reform were both dead, thanks to the growing political strife over our nation's monuments and bitter divisions in Congress and that's just among the Republicans.

But the folks at Politico recently noted that the discussions between the White House and Congress on finding ways to lower both individual and corporate tax rates without adding to deficits had reached a "broad consensus."

The participants "have made significant strides in shaping a tax overhaul, moving far beyond the six-paragraph framework pushed out in July that stoked fears about their ability to deliver on one of the GOP's top priorities."

This is a big reason why the stock market has turned and rallied this week. And it tells you all you need to know about our tax code: It's hopelessly complex, costly and confusing. Its inbuilt inefficiencies cost the U.S. economy, conservatively, hundreds of billions of dollars a year.

Republicans are energized about tax reform because, unlike ObamaCare repeal, they see fundamental change in the tax code as achievable by the end of the year. This will be significant, since next year is an election year, and GOP representatives and senators don't want to go back to their districts and say "we got zip," despite controlling both branches of Congress and the White House.

But beyond that, they understand as most Democrats apparently don't that fundamental tax reform, even if it were modest in scope, would be a huge winner for the economy. By raising the returns on work and investment, which is what tax cuts would do, the U.S. economy could grow faster.

"What we are proposing on the individual side is get rid of the loopholes, get rid of the carve-outs, just lower people's tax rates," said House Speaker Paul Ryan, speaking Monday evening. Ryan, National Economic Council Director Gary Cohn, Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell, Senate Finance Chair Orrin Hatch and House Ways & Means Committee Chair Kevin Brady form the so-called "Big 6" of Washington power brokers who have been quietly meeting on tax reform.

And they're making progress. But they should heed past experience, which shows it's better to make whatever reforms you pass permanent, rather than subjecting taxpayers to doubts that tax changes could be undone easily in future years by a mere up-or-down vote in Congress.

Making the changes permanent and excluding gimmicks including "retroactive" tax cuts, which do nothing but add to our nation's indebtedness is key to long-term success. And rather than focusing solely on "paying for" tax cuts by removing other tax breaks, they should also look at spending, which is the real problem with our government.

As for those who think tax reform or tax cuts are just political pandering, they should look at history.

As a Tax Foundation review of seven major tax-reform efforts over the past 60 years shows, tax "reforms" that raise marginal tax rates on businesses and individuals or on capital tend to hurt long-term economic growth. Those that lower taxes on businesses, capital and personal incomes, while making them simpler, lead to faster economic growth.

But overall, tax reform is a winner, yielding on average 2.6% higher GDP over 10 years than without it. The U.S., with its subpar 2% growth right now, can't afford to pass up this chance to reboot the economy and return to a 3% or so growth rate.

If that 2.6% growth estimate doesn't impress, consider this: Based on Congressional Budget Office estimates, U.S. GDP will totalroughly $236.856 trillion over the next 10 years. So a mere 2.6% addition to growth would add about $5.4 trillion more in economic output over that time. Yes, it's a big difference.

The point is, tax reform is a big winner. It will create stronger businesses, more jobs, higher incomes and a better standard of living for all. The Republican-led Congress in June whiffed on ObamaCare repeal and replace. After that, we feared that tax reform, too, was dead.

Turns out that tax reform, once though defunct, has a zombielike second life. But it's a good zombie. If the GOP wants to remain in control after 2018, it had better pay attention to the zombie: Pass a fundamental tax reform, the sooner the better, and show you can keep a promise.

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Like A Movie Zombie, Tax Reform Refuses To Die - Investor's Business Daily

Reviewed and Recommended by Erik Baquero