Republican’s Tax Cuts and Jobs Act Could Create 1 Million Jobs, Grow GDP by 3.9 Percent
The Republican’s proposed Tax Cuts and Jobs Act will create up to 1 million new jobs, and increase GDP by 3.9 percent, according to a new analysis from the Tax Foundation, a nonpartisan public interest group.
Furthermore, the Foundation estimates that the average after-tax income for a middle-income family will grow by $2,598 over the next 10 years, as a direct result of this tax bill. They arrived at this number by factoring in both tax savings and the projected impact on economic growth (all else remaining equal).
The legislation will accomplish this primarily by:
1. Cutting the corporate tax rate from 35 to 20 percent.
2. Reducing the number of individual tax brackets to five—the lowest marginal tax rate will remain 0 percent, with brackets increasing to 12, 25, 35, and 39.6 percent.
3. Doubling the standard tax deduction, allowing low income earners to shield more of their income.
As reported by the Washington Free Beacon, Republican Members of Congress estimate that the Tax Cuts and Job Act will give an ordinary middle class family of four (earning $59,000 annually) a tax break of $1,182 per year (not including the projected economic growth).
The study’s findings are consonant with those produced by the Council of Economic Advisers, which found that reducing the corporate tax rates from 35 to 20 percent will increase America’s GDP by 3 to 5 percent over the coming decade.
The CEA’s chairman, Kevin Hassett, writes:
We can be highly confident that the level of GDP will be 5 percent higher 10 years from now… We would ramp up to that with steady growth of about 0.5 percent per year higher just from the corporate tax side…the president’s plan is already having a positive effect on economic growth.
Additionally, this study estimates that the benefits to the average American’s income could be even higher, at $4,000 annually.
This is all good news: Americans are woefully overtaxed—but we shouldn’t get ahead of ourselves.
The biggest problem isn’t a high tax rate, it’s tax complexity. As we wrote in our previous analysis of Trump’s tax plan:
…a major issue is with the tax code’s complexity. Most people, whether democrats or republicans, acknowledge this as a problem—fully 90 percent of Americans think the tax code is too difficult for ordinary people to understand.
This complexity costs us money: American people and businesses end up spending big bucks hiring accountants and lawyers to simply comply with the tax code. In fact, last year Americas spend an absurd $409 billion on tax compliance—a record high, which will only continue to grow unless meaningful tax reform is enacted.
And just so we’re clear: the people aren’t wrong. The US tax code has nearly tripled in length from Reagan’s substantive reforms in 1986 (which themselves were inadequate). The US tax code is 2,650 pages long, and in addition to that, there is a further 70,000 pages of tax forms, instructions, and common law court decisions that must be complied with.
And this does not even include the myriad of pseudo-taxes like Obamacare, where the average family health insurance plan costs employers some $17,000 per year—this is a tax by any other name.
Add to this minimum wage laws, government regulation fees (things like business licenses or certifications) and it truly is a wonder that anyone can afford to do business in America.
Overall, the tax bill, while helpful, doesn’t really address the core issue of tax complexity. Furthermore, it lacks the necessary protections for American industry that the president promised. This is regrettable, but a good first step.