Looks like we will be getting long-overdue tax reform in our Christmas stockings.
After the Senate voted along party lines to pass the bill last night (the House must vote again today because of a procedural glitch), the Democrats and celebrities out did themselves on social media, but the Wall Street Journal has a good editorial this morning on just what the bill means. The editorial begins:
The tax reform that will pass Congress Wednesday fulfills a major Republican campaign promise, but more important is that it marks a return to the politics of growth after many lean years of envy and income redistribution. It offers hope of broader prosperity after a decade of slow growth and rising inequality.
On the merits, the bill is the most pro-growth tax policy since the Reagan reforms of 1981 and 1986. We should add that it is not as good for individual taxpayers as those two acts. The bill cuts marginal tax rates only a little for individuals, and that will temper its growth impact. The politics of envy that has dominated American politics since the mid-2000s has also infected many Republicans, especially its Beltway intellectual class.
This reform will rise or fall on its business tax changes, and those are arguably superior to the 1986 act. The corporate rate cut to 21% from 35% solves a core problem of U.S. economic and business competitiveness. Along with 100% expensing, the rate cut slashes the cost of capital enough to cause CEOs to think again about America as a place to invest. Sweeping away many (alas, not all) special tax breaks means fewer incentives to misallocate capital.
These business tax changes are the ones opponents of the tax bill have derided as being for the rich. Envy is at play here but also two views of what America needs: one view says prosperity and more employment, while the other camp calls for permanent assistance from the government for those left behind (and lots of people are left behind when job creation lags).
The Independent Women's Forum issued a statement praising the tax relief the reform bill will deliver to ordinary Americans and the business cuts that will stimulate economic growth and provide more jobs and wage increases, which will benefit women and families.
The Journal editorial also does something that has become unusual in Washington–it praises several GOP leaders:
This is a credit in particular to the successive House Ways and Means Chairmen who negotiated the reform tradeoffs. Dave Camp, Paul Ryan and Kevin Brady persisted through years of political setbacks for this moment, while Senate Majority Leader Mitch McConnell shrewdly tapped Pat Toomey of Pennsylvania to maneuver the bill through the Budget and (with Orrin Hatch ) Finance committees. These are examples of how individual legislators make a difference.
And passage of the bill is a bid to begin shoving off the stage the ghost of John Maynard Keynes, whose economic theories have had a much too long shelf life:
Republicans succeeded despite a narrow Senate majority, no help from Democrats, and the near-universal hostility of the Beltway press. They also had to overcome the Keynesian bias embedded in such institutions as the Congressional Budget Office and Tax Policy Center that are treated as policy oracles when they merely offer guesses about policy outcomes that are often wrong.
Why then is this bill so unpopular?