House Republicans have released a proposal for major tax reform. Kudos to Ways and Means chairman Kevin Brady for stepping up to the plate and planning ahead for 2017. Brady and his staff did extensive outreach to think tank experts and the GOP caucus, and they have come up with a blueprint that focuses on savings, investment, simplification, and economic growth.
The GOP plan would cut the top personal income tax rate from 40 percent to 33 percent, while consolidating the bracket structure from 7 rates to 3. The plan would reduce the top tax rate on small businesses to 25 percent, and it would repeal the estate tax and alternative minimum tax.
The corporate tax rate would be cut from 35 percent to 20 percent. That would be the single most important thing that the next Congress could do for the U.S. economy. Corporations build factories, buy equipment, and hire workers to earn after-tax profits. Slashing the marginal tax rate by 15 points would substantially increase the after-tax profits companies could earn on new investments, and they would respond accordingly. More capital investment would mean more job opportunities and higher wages for American workers.
The GOP plan would allow businesses to immediately write off capital investment, which would further boost after-tax returns on new investment and simplify the tax code. The plan would adopt a “territorial” approach for foreign business income to make America an attractive place to headquarter multinational corporations. The lower tax rate, territorial approach, and capital expensing would generate a large inflow of real investment and paper profits to our shores, rather than repelling them as our current tax system does.
The GOP plan would expand individual saving opportunities as well. In particular, it embraces the Brat/Flake proposal (H.R. 4094/S. 2320) for creating Universal Savings Accounts (USAs). After the big success of such accounts in Canada and Britain, I’ve long argued that USAs are a no-brainer for tax reform in the USA.
House Speaker Paul Ryan has championed major tax reform for years. If Donald Trump wins the White House, the GOP could well move swiftly on tax reform early in 2017. Ryan and Brady are smart to put a detailed plan out there now and rally support for bold changes.
