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Trump's incentive-packed tax plan

Lawrence Kudlow on

OK, let's take one example from the Trump tax plan. Corporations today are taxed at 35 percent. That means, for every extra dollar of profit, a company keeps 65 cents. But the president has agreed on a 20 percent corporate tax rate. So, for the extra dollar earned, the private company would keep 80 cents.

That's a massive 23 percent incentive reward. Do we really think businesses will not be affected by this? That defies logic.

And as supply-side mentor Art Laffer points out, the incentive reward of a lower business tax rate will reduce tax avoidance and sheltering. It's another solid point mainstream economists continue to ignore.

But the incentive effects don't stop there. The key to wage growth is productivity. Think of it as efficiency. And large and small businesses need new capital investment to modernize equipment and better train an efficient workforce.

Yet real wages have barely increased since 2000, alongside virtually no productivity increases and a huge slump in capital formation. That's the missing link between a 2 and a 3 percent economy.

Rather than punish investment, the Trump plan will spur growth across the board. Everyone will benefit.

The supply-side incentive effect also includes the repatriation of trillions of U.S. company dollars lodged overseas to avoid taxes, as well as 100 percent expensing write-offs for new investment of any kind.

Taken together, this plan contains a mountain of incentives.

On the individual side, the sleeper tax detail is the doubling of the standard deduction. As my CNBC colleague Jake Novak points out, this is a huge positive for young millennials (who don't own much) and folks with no mortgages or homes. It puts more cash in worker's pockets, simplifies the code and means that near 80 percent of taxpayers won't have any deductions.

 

Slimming income-tax rates from seven to three brackets and cutting income-tax rates in general add even more supply-side incentives to the Trump package.

More money for rich people? Well, the not-rich family of four will be a lot better off with a $24,000 standard deduction. And the center-right Tax Foundation calculates that the bottom 80 percent of households get a lower tax burden, while the top 20 percent get a higher burden.

The Republican Party has got to win this issue, preferably this year.

So, a warning: The GOP cannot let archaic process rules prevent good policy. Rules can be changed. CBO estimates can be ignored. Parliamentarian decisions can be overridden.

Play hardball, GOP. JFK did it. Reagan did it. And now you have Donald Trump doing it -- using all his energy to get a big tax cut that will return prosperity to America's workers and families and enhance our strength overseas.

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To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate webpage at www.creators.com.

Copyright 2017 Creators Syndicate Inc.
 

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