A pro-growth tax bill is on the way
As the House and Senate work their way through the tax cut and reform effort, let me make one thing clear: Both plans are pro-growth, with the economic power coming from the business side. And where it comes from the personal side, there will be very little growth. That was always been the bet.
During the spring and summer of 2016, economist Steve Moore and I, working with Trump campaign officials Steven Mnuchin and Stephen Miller, saw major tax reductions for large and small businesses as the centerpiece of the candidate's tax policy. Whatever Congress came up with on the personal side, so be it.
So, one way or another -- even with the glitches and differences between the House and Senate tax plans -- Congress will come up with a significant pro-growth bill because business tax cuts are still the centerpiece. And they should do it this year.
I spoke at a Senate Republican breakfast in Washington, D.C., last Tuesday. The whole leadership was there. And I observed a total commitment among the GOP senators to get a tax bill through by year-end. This will not be another health care breakdown.
Particularly after recent GOP electoral setbacks, the party knows it needs a strong tax-cut and economic-growth narrative for the 2018 midterms. If Republicans don't get it, they'll lose control of Congress. And if they do get it, they may pick up seats.
The political stakes are high.
As mentioned, there are glitches in both the Senate and House tax plans. But most of them can be corrected. And the differences between the two plans should narrow in conference.
The all-important business tax rate will come down to 20 percent from 35 percent. That's the key to economic growth. And the biggest beneficiaries will be middle-class wage earners.
The issue of small-business pass-throughs is not completely resolved. It seems the Senate has a better take on this than the House. But there's a small-business tax cut coming.
The Senate's idea to phase in the new corporate tax rate in 2019 is a bad idea. (President Trump agrees.) To be sure, the GOP senators want full cash expensing for capex projects for 2018. Good. But as economist Art Laffer warns, if you hold back the actual rate reduction, you'll see a lot of tax avoidance and sheltering next year.