Governor Jeb Bush’s proposed pro-growth tax reform, mimicked by Donald Trump, is an important step forward.
The U.S. economy has been plagued with unacceptably slow growth since the 2007-09 recession — so slow that six years into our supposed recovery, policymakers still talk about the need for economic stimulus. It should not be this way.
Spurring economic growth requires broad-based reforms that must include effective tax reform. Governor Jeb Bush’s proposed pro-growth tax reform, mimicked by Donald Trump, is an important step forward that will simplify our tax code, lower the top marginal income tax rates, and help accelerate economic growth.
Thanks to recent tax increases, the highest marginal income tax rates in the country confiscate around one-half of a family’s income, when federal and state income taxes and payroll taxes are included.
Reducing high tax rates increase the incentive to work, save and invest. It accelerates economic growth. And, this is not just theory.
Over the past 50 years, there have been several major reductions in federal income tax rates, including 1964, 1982, 1986, 1997 and 2003. There have also been several rate increases, including 1991, 1993 and 2013.
Generally speaking, economic and job growth was stronger following the reductions in tax rates, and weaker following the tax rate increases. Perhaps more important, during the periods of robust growth, wage gains were broadly shared across all income groups.
As for budget effects, federal income tax revenue will grow more slowly under the Bush tax plan than current revenue growth expectations. But, only the federal government’s accounting calls slower revenue growth a revenue loss.
Just as important, greater budget discipline in Washington is growth enhancing. Economic growth is harmed when government spending is wasteful and excessive, and there are many reform opportunities. Simply because past attempts to control spending have failed does not mean future attempts cannot succeed.
Economic growth occurs when individuals are incentivized to work, save and produce, and a fiscally responsible government spends taxpayers’ money wisely. Bush’s plan achieves these important goals.