House GOP Tax Blueprint Gives Families Tax Cuts, Higher Wages, and Simplicity
Opponents of the House Republican “Better Way” Tax Reform blueprint have falsely claimed the plan will increase costs for American families.
The critics say the border adjustability component of the cash-flow business tax will cost the average family $1,700 per year. But that is without acknowledging all the good the blueprint does. It’s a scare tactic. They are only looking at the border adjustment part of the plan in isolation without accounting for positive effects in the plan. Even then, it is not clear that they are accurately analyzing the impact of the border adjustable cash-flow tax.
Taken as a whole, the blueprint is a drastic net tax cut and implements numerous pro-growth policies. The plan cuts taxes for individuals across the board and implements reforms that will result in higher wages and more jobs due to stronger economic growth. The plan also drastically simplifies the enormously complex code.
Tax Cuts for Individuals
The blueprint reduces tax rates for American families across the board. It folds the existing seven tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) into three brackets (12%, 25%, 33%).
It also doubles the standard deduction from $6,000 to $12,000 ($12,000 to $24,000 for families). This larger standard deduction means that individuals who go from the existing 10 percent bracket to the new 12 percent bracket will see a net tax increase. These changes mean lower taxes for ALL Americans.
Higher Wages for Families
The blueprint contains numerous pro-growth policies that increase wages for families. The plan drastically reduces taxes on businesses (42 percent for both small businesses and corporations) and replaces the confusing and arbitrary depreciation schedules with immediate, full business expensing for investments.
According to research by the Tax Foundation, the blueprint will increase after-tax income by nearly 9 percent, or close to $5,000 for the average family. The plan will also increase economic growth by 9.1 percent over the long-term and create an additional 1.7 million new jobs.
Drastic Simplification of the Code
Currently, the tax code is too complex for families to understand. The code is around 75,000 pages long, forcing taxpayers to waste more than 8.9 billion hours and $400 billion in annual compliance costs. Half of all individual taxpayers rely on a paid professional to file their taxes.
The blueprint will make it so easy to file taxes that it can be done on a postcard. Numerous changes are made to the code, including repeal of the Alternative Minimum Tax and the Death Tax, and the consolidation of existing family tax credits will reduce the need to itemize deductions for the majority of Americans and the need to devote time and resources to tax filing.
Border Adjustability Does not Increase Costs
It is not even clear that border adjustability will increase costs to the extent that critics claim. Economists on both the Left and the Right agree that the reforms in the plan will offset any increase in costs. The cash-flow business tax that replaces the existing corporate income tax incentivizes foreign and domestic investment in the U.S. because of its low rate and consumption base. In turn, this drives up demand for the dollar, which causes the currency to appreciate. A stronger U.S. dollar means more purchasing power for consumers buying foreign goods.