Tax Reform Making a Difference in Increasing Opportunity for All Americans

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In the early 21st century, American fiscal policy must balance and prioritize two fundamental goals. First, we need to create the best possible environment for investment and innovation, setting the stage for another century of unparalleled prosperity. Second, we need to ensure that the largest possible number of Americans, from every state and every city, have the opportunity to participate in and contribute to our nation’s success.

Longstanding ideological debates out of Washington D.C. suggest that these two goals are largely incompatible, if not mutually exclusive. Too many politicos assume that free-market economic policies cannot simultaneously support wealth creation and the equitable distribution of opportunity as well. I know this to be false, both through lived experience and from over a decade of policy analysis and evaluation. This false dichotomy lies at the heart of the decline in productive bipartisanship over the last few decades.

Let us consider the most substantial recent change in America’s economic policy, the Tax Cuts and Jobs Act of 2017. I was and remain a supporter of this fiscal reform for multiple reasons. As has become obvious through the recent explosion in economic growth, America’s corporate and personal income tax burden was too high, making our businesses less competitive and dis-incentivizing the type of investment that is now being made across America.

It is hard to pin down exact cause and effect relationships between specific economic policies and subsequent economic growth. But it’s hard to argue that our country’s current explosion in economic growth, especially coming in the middle of an existing economic expansion, isn’t largely the result of the 2017 tax cuts.

As a true fiscal conservative, I will be the first to say that we must consider whether we are poised to generate enough tax revenue to cover the promises we have made to our senior citizens, veterans, and other priorities, but credit must be given where credit is due.

Apart from its impact on growth, the tax cut legislation also speaks to what I believe should be the other fundamental priority in our fiscal policy – ensuring that as many Americans as possible get the chance to participate in and benefit from our nation’s shared prosperity.

A provision in the new tax law allows governors to designate Opportunity Zones from a pool of low-income, high-poverty census tracts. Investors can then create Opportunity Funds to seed either new businesses in those areas, business expansion, or real estate development. Investors are incentivized to participate by the law’s provisions allowing them to minimize their tax burden using preferential treatment of capital gains through sustained investments in these communities.

The potential that policies like this hold is nearly impossible to overstate. If we can create a sustained link between America’s investors and our most struggling communities, we can tap into the more than $2 trillion in unrealized capital gains currently sitting on individual and corporate balance sheets across America.

A related idea currently being explored by multiple startups is offering college students an alternative to college loans in which they agree to pay them back through a certain percentage of their future income, but only once they achieve a specified level of economic success.

Through programs like this, these companies are quite literally investing in the future success of America. It is worth exploring how modest changes in tax policy might help to expand opportunity for millions of Americans who are otherwise hesitant (rightfully so) to burden themselves with massive student loans, which must be repaid regardless of their future success.

During the campaign, President Trump talked about enacting a “Tax Cuts 2.0” tax reform package focused largely on the middle class.  While this may be now up in the air following the Democratic victory in the House, Congress should not pass up the opportunity to work across party lines to boost the middle class even more.

Even if the recent tax cuts “only” pushed economic growth above 3%, prompted the unemployment rate to fall to near historic lows while also increasing the labor force participation rate, and spurred many billions of dollars of investment in American businesses and American jobs, this should be enough to garner bipartisan support for these policies.

But we should support the 2017 tax reform, and whatever similar economic policies are enacted in the future, for the same reason that we should support programs like school choice and other evidenced-based investments in the future shared success of our nation.

We are not just investors, or taxpayers, or entrepreneurs.  We are Americans, and we should aspire to see that all Americans share in our greatness together.

Damon Dunn is a fellow in business and economics at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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