Those of us who have spent decades advocating for tax reform are still trying to process the late December passage of the most sweeping tax reform in 30 years. To finally succeed at tax reform after decades of effort seems almost too good to imagine.
Amazingly, what President Trump has given us is real, substantive, growth-stimulating tax reform, instead of the typical bait-and-switch we might have expected. When Democrats during the Obama administration said they were interested in tax reform, their plan was to use a slight drop in the corporate tax rate as cover for eliminating virtually all business exemptions and deductions, resulting in a higher effective tax rate. In other words, businesses would have actually paid higher taxes. And while Republicans were wise to the Democrats' gambit, they themselves would have been content with simply tinkering and then claiming credit for an impotent tax reform, as they demonstrated with their proposed Tax Reform Act of 2014.
Not Donald Trump. Perhaps Trump's greatest contribution to tax reform was selling his working-class supporters on the idea that corporate rate cuts would be good for them. Now, this is absolutely true -- lower taxes on businesses will accrue to the benefit of workers, consumers, and owners of IRA and 401k accounts. The ever-growing list of companies announcing bonuses, pay increases, higher retirement matching and price reductions is only a first installment on what is to come.
Getting the corporate rate down to 21 percent was almost equally miraculous. By pushing for an audacious 15 percent corporate tax rate, Trump made possible a rate lower than anyone could imagine. If you had told people like me a few years ago that, in 2018, we would have a 21 percent corporate tax rate, we would have begun giggling uncontrollably. Simply too good to be true.
Why would we have been so giddy? Because there is every reason to believe that this tax reform will have significant economic benefits for the U.S. With a 21 percent corporate tax rate, we have solved our decades-long global competitiveness problem. Beginning in 2018, the U.S. is once again the best place in the world to do business, and our competitors are already beginning to panic. Trillions of dollars in corporate cash stranded overseas will soon be repatriated to the U.S. And while companies might have just parked that cash, tax reform critically includes full and immediate deductibility of business investment, so that cash will have productive places to go. This kind of private sector business investment is what drives real economic growth, and this is the first major improvement in the U.S. investment climate since 1986.
I don't know what lies ahead for the Trump administration, but President Trump has already done more to grow the U.S. economy than the last four presidents and 28 years combined. In itself that is a significant policy legacy.
(A longer version of today’s TaxByte originally appeared in the Dallas Morning News.)