ICYMI – IBD Editorial: Who Gains From Tax Reform 2.0? Middle-Class And Low-Income Workers

September 28, 2018 — Blog    — In Case You Missed It...   

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Who Gains From Tax Reform 2.0? Middle-Class And Low-Income Workers

By Editorial Board

September 27, 2018

Tax Reform 2.0: There’s little question among serious economic thinkers that the tax cuts that went into effect this year have given the economy a major boost. Despite what critics say, it has helped all Americans, not just the rich. It’s time to make them permanent.

As early as Friday, we may get a vote on making the tax cuts permanent, rather than “sunsetting” them in 2026, as currently planned.

As we’ve mentioned more than once, these tax cuts aren’t a “giveaway to the rich” or “fat cats.” In fact, a new analysis from Congress’ Joint Economic Committee (JEC) shows that the benefits of making the cuts permanent would mostly go to low- and middle-income earners.

We’re not surprised. This tax cut was designed to encourage people to work more and pocket more of what they earned. It’s worked spectacularly well. So-called “Tax Reform 2.0” will cement the benefits of tax cuts in place by making them permanent.

As the JEC notes in its report:

  • “Taxpayers with incomes under $50,000 will see their share of the total federal tax burden drop from 4.2% to 3.9%.”
  • “Those with less than $10,000 in income will see their taxes slashed by more than half.”
  • “Average taxpayers with incomes between $10,000 and $20,000, a group that frequently claims refundable tax credits, will have no tax liability and receive an additional refund.”
  • ” Millionaires will actually see their share of the total federal tax burden rise to 20.2%, compare to 19.6% if tax relief expires.”
  • “While taxpayers will enjoy an average 5.2% cut in their taxes, taxpayers that earn over $1 million will see a below-average reduction of 2.3%.”

Relief For Working Families

Or, as House Ways and Means Committee Chairman Kevin Brady described the bill earlier this month, “This will create over 1.5 million new jobs, continue to raise wages, and boost long-run GDP.”

Indeed, it’s already doing the job of delivering massive relief to working families. “Thanks to TCJA (the Tax Cuts and Jobs Act), 90% of wage earners are seeing higher take-home pay,” Grover Norquist, president of Americans for Tax Reform, wrote in The Hill. “A family of four earning the median annual income $73,000 per year will see a 58% reduction in federal taxes, while a single parent with one child earning $41,000 will see a 73% reduction in federal taxes.”

In short, the argument that this is a tax cut for the rich has completely fallen on its face, and Democrats know it. But it’s the only argument they’ve got.

Meanwhile, in addition to the tax cuts, House Republicans have included two other bills under the Tax Reform 2.0 rubric. They’re both pro-savings, pro-growth and pro-middle class. Congress should pass them, too.

The second bill would expand retirement and education savings accounts, and also create tax-free Universal Savings Accounts that would make it easier for all Americans to save for retirement and other long-term needs.

A Boost For Small Business

A third bill, the American Innovation Act of 2018, would allow businesses to deduct up to $20,000 in startup expenses in the year they are incurred, with some exceptions.

Critics have pounced on the $627 billion “price tag” for the tax cuts estimated over the next decade. But that raises the question: price tag for whom? Federal bureaucrats? Americans overwhelmingly like keeping their money rather than handing it over to a federal government that refuses to control its spending. As a recent report noted, the federal government could cut $3.1 trillion in spending over half a decade just by getting rid of wasteful, unnecessary programs.

Rather than denying working people the money they’ve earned, Washington politicians should be looking for ways to dramatically cut government spending. That’s the reason for the soaring deficits — not tax cuts.

We hope the House votes and goes on record on this. It will help to clarify voters’ minds. Thanks to the kerfuffle caused by the Democrats over Brett Kavanaugh’s nomination to the Supreme Court, the Senate will not likely have time to vote on Tax Reform 2.0 before the election.

For the record, Democrats have unveiled plans to raise taxes by trillions of dollars, should they win in November. And they’re dead set against any tax cuts. Voters, beware.

It’s time to make the tax cuts permanent, and put the U.S. on a solid footing for decades to come.